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Fixed Rate versus Adjustable Rate Mortgages: Evidence from Euro Area Banks

Author

Listed:
  • Ugo Albertazzi

    (ECB -DG Monetary Policy)

  • Fulvia Fringuellotti

    (Federal Reserve Banks - Federal Reserve Bank of New York)

  • Steven Ongena

    (University of Zurich - Department of Banking and Finance; Swiss Finance Institute; KU Leuven; Centre for Economic Policy Research (CEPR))

Abstract

Why do residential mortgages carry a fixed or an adjustable interest rate? To answer this question we study unique data from 103 banks belonging to 73 different banking groups across twelve countries in the euro area. To explain the large cross-country and time variations observed, we distinguish between household conditions that determine the local demand for credit and the characteristics of banks that supply credit. As bank funding mostly occurs at the group level, we disentangle these two sets of factors by comparing the outcomes observed for the same banking group across the different countries. Local household conditions dominate. In particular we find that the share of new loans with a fixed rate is larger when: (1) the historical volatility of inflation is lower, (2) the correlation between unemployment and the short-term interest rate is higher, (3) households' financial literacy is lower, and (4) the use of local mortgages to back covered bonds and of mortgage-backed securities is more widespread.

Suggested Citation

  • Ugo Albertazzi & Fulvia Fringuellotti & Steven Ongena, 2020. "Fixed Rate versus Adjustable Rate Mortgages: Evidence from Euro Area Banks," Swiss Finance Institute Research Paper Series 20-99, Swiss Finance Institute.
    • Handle: RePEc:chf:rpseri:rp2099
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    2. Ahn, Kwangwon & Forsyth, Joetta & Jang, Hanwool & Kim, Dongshin, 2022. "Fixed rate mortgages: The cost of interest rate risk aversion," Finance Research Letters, Elsevier, vol. 44(C).
    3. Sangyup Choi & Kimoon Jeong & Jiseob Kim, 2024. "Asymmetric Mortgage Channel of Monetary Policy: Refinancing as a Call Option," Working papers 2024rwp-228, Yonsei University, Yonsei Economics Research Institute.
    4. KÄ rlis Vilerts & Sofia Anyfantaki & KonstantÄ«ns Beņkovskis & Sebastian Bredl & Massimo Giovannini & Florian Matthias Horky & Vanessa Kunzmann & Tibor Lalinský & Athanasios Lampousis & Elizaveta Lu, 2025. "Details matter: loan pricing and transmission of monetary policy in the euro area," Working Papers 345, Bank of Greece.
    5. Stephen Kho, 2023. "Deposit market concentration and monetary transmission: evidence from the euro area," Working Papers 790, DNB.
    6. Palligkinis, Spyros, 2025. "Bank lending rates and the riskiness of euro area household loans," Working Paper Series 3053, European Central Bank.
    7. Yulia Evsyukova & Federico Innocenti & Niccolò Lomys, 2024. "Optimal Multiple Loan Contracting under Sequential Audits and Contagion Losses," CSEF Working Papers 743, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    8. Kerola, Eeva & Laine, Olli-Matti & Paavola, Aleksi, 2025. "Heterogeneous responses to monetary policy: The role of floating rate loans," Bank of Finland Research Discussion Papers 7/2025, Bank of Finland.
    9. Kho, Stephen, 2025. "Deposit market concentration and monetary transmission: Evidence from the euro area," European Economic Review, Elsevier, vol. 173(C).
    10. Willem Vanlaer & Mattia Picarelli & Wim Marneffe, 2021. "Debt and Private Investment: Does the EU Suffer from a Debt Overhang?," Open Economies Review, Springer, vol. 32(4), pages 789-820, September.
    11. Islam, Mohammad Saiful & Koch, Jascha-Alexander, 2024. "Can higher federal funds rates control mortgage lending during periods of high inflation and high house prices?," Finance Research Letters, Elsevier, vol. 67(PA).
    12. Daniel Dieckelmann & Hannah S. Hempell & Barbara Jarmulska & Jan Hannes Lang & Marek Rusnák, 2025. "House prices and ultra-low interest rates: exploring the nonlinear nexus," Empirical Economics, Springer, vol. 68(3), pages 1001-1037, March.
    13. Peter Hoffmann & Sam Langfield & Federico Pierobon & Guillaume Vuillemey, 2019. "Who Bears Interest Rate Risk?," The Review of Financial Studies, Society for Financial Studies, vol. 32(8), pages 2921-2954.
    14. Guiso, Luigi & Pozzi, Andrea & Tsoy, Anton & Gambacorta, Leonardo & Mistrulli, Paolo Emilio, 2022. "The cost of steering in financial markets: Evidence from the mortgage market," Journal of Financial Economics, Elsevier, vol. 143(3), pages 1209-1226.
    15. Giancarlo Corsetti & Joao B. Duarte & Samuel Mann, 2020. "One Money, Many Markets: Monetary Transmission and Housing Financing in the Euro Area," IMF Working Papers 2020/108, International Monetary Fund.
    16. Benjamin Baker & Murat Üngör, 2025. "Effects of Quantitative Easing on Economic Sentiment: Evidence from Three Large Economies," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 67(1), pages 50-83, March.
    17. Cenzon, Josefina & Szabó, Barna Elek, 2024. "Mortgage choice and inflation experiences in the Eurozone," Journal of Monetary Economics, Elsevier, vol. 147(S).
    18. Martin Groiss & Nicolas Syrichas, 2025. "Monetary Policy, Property Prices and Rents: Evidence from Local Housing Markets," Berlin School of Economics Discussion Papers 0058, Berlin School of Economics.

    More about this item

    JEL classification:

    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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