Adjustable- versus Fixed-Rate Mortgage Choice: The Role of Initial Rate Discounts

Richard A. Phillips and James VanderHoff ()
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Richard A. Phillips: Department of Economics Old Dominion University Norfolk, Virgiana 23529, http://www.odu-cbpa.org/economics.htm
James VanderHoff: Department of Economics Rutgers University at Newark Newark, New Jersey 02101, http://rutgers-newark.rutgers.edu/econnwk/

Journal of Real Estate Research, 1991, vol. 6, issue 1, pages 39-52

Abstract: This paper investigates relative pricing determinants of the fixed-rate mortgage (FRM) versus adjustable-rate mortgage (ARM) decision. A probit model is estimated using data from a national sample of residential housing transactions for the 1986 and 1988 period. The results suggest that the probability of ARM choice is highly sensitive to ARM initial rate ("teaser") discounts and differences in the ratio of FRM to ARM points. In addition, the findings indicate that the level of local housing prices is an important determinant of ARM choice.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 1991
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