Fixed rate mortgages: The cost of interest rate risk aversion
نویسندگان
چکیده
Mortgages play a significant role in the US economy. Americans predominantly use fixed-rate mortgages (FRMs) to avoid interest rate risk, but related risk aversion cost has not been analyzed yet. This paper fills gap by investigating of choosing FRMs over adjustable-rate (ARMs). We find that ex post, FRM borrowers made 12% – 23% higher payments 0.66% 1.62% potential ARM payment shocks. Consequently, we introduce and analyze payment-saving strategy absorb Emerging data show are less financially constrained concern policymakers.
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ژورنال
عنوان ژورنال: Finance Research Letters
سال: 2022
ISSN: ['1544-6131', '1544-6123']
DOI: https://doi.org/10.1016/j.frl.2021.102158