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Rethinking Mortgage Design

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Abstract

Because mortgages make up the majority of household debt in most developed countries, mortgage design has important implications for macroeconomic policy and household welfare. As one example, most U.S. mortgages have fixed interest rates?if interest rates fall, existing borrowers need to refinance to lower their interest payments. In practice, households are often slow to refinance, or may not be able to do so. As a result, the transmission of U.S. monetary policy is dampened relative to countries like the United Kingdom where mortgage rates on most loans adjust automatically with short-term interest rates. In this post, we discuss some of the key takeaways from a recent conference where policymakers, academics, practitioners, and other experts convened to discuss mortgage design and consider possible mortgage market innovations.

Suggested Citation

  • John Campbell & Andreas Fuster & David O. Lucca & Stijn Van Nieuwerburgh & James Vickery, 2015. "Rethinking Mortgage Design," Liberty Street Economics 20150824, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednls:87058
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    More about this item

    Keywords

    Monetary Policy; Mortgages; Household Finance;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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