Mortgage contracts and housing tenure decisions

Matthew Chambers (), Carlos Garriga () and Don E. Schlagenhauf

No 2007-040, Working Papers from Federal Reserve Bank of St. Louis

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.

Keywords: Housing - Finance; Mortgage loans (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-dge, nep-geo and nep-ure
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Citations: View citations in EconPapers (8)

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