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Mortgage contracts and housing tenure decisions

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  • Matthew Chambers
  • Carlos Garriga
  • Don E. Schlagenhauf

Abstract

In this paper, we analyze various mortgage contracts and their implications for housing tenure and investment decisions using a model with heterogeneous consumers and liquidity constraints. We find that different types of mortgage contracts influence these decisions through three dimensions: the downpayment constraint, the payment schedule, and the amortization schedule. Contracts with lower downpayment requirements allow younger and lower income households to enter the housing market earlier. Mortgage contracts with increasing payment schedules increase the participation of first-time buyers, but can generate lower homeownership later in the life cycle. We find that adjusting the amortization schedule of a contract can be important. Mortgage contracts which allow the quick accumulation of home equity increase homeownership across the entire life cycle.

Suggested Citation

  • Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2007. "Mortgage contracts and housing tenure decisions," Working Papers 2007-040, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2007-040
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    Cited by:

    1. Matthew Chambers & Carlos Garriga & Don E. Schlagenhauf, 2009. "Accounting For Changes In The Homeownership Rate," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 677-726, August.
    2. McCarthy, Yvonne & McQuinn, Kieran, 2017. "Credit conditions in a boom and bust property market: Insights for macro-prudential policy," The Quarterly Review of Economics and Finance, Elsevier, vol. 64(C), pages 171-182.
    3. Hasan, Zubair, 2012. "Excel formula and Islamic norms for home financing," MPRA Paper 42835, University Library of Munich, Germany.
    4. Hasan, Zubair, 2012. "Mortgage contracts in Islamic home finance: Musharakah Mutanaqisah program vs. Zubair diminishing balance model," MPRA Paper 39067, University Library of Munich, Germany.
    5. Hasan, Zubair, 2013. "Response to Meera’s critique of the ZDBM," MPRA Paper 43747, University Library of Munich, Germany.
    6. Hasan, Zubair, 2012. "Islamic norms, the excel formula and home financing models," MPRA Paper 47955, University Library of Munich, Germany, revised 2013.
    7. Hasan, Zubair, 2013. "A critique of the Diminishing Balance Method of Islamic home financing - Response," MPRA Paper 43684, University Library of Munich, Germany.

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    Keywords

    Housing - Finance; Mortgage loans;

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