Debt Usage and Mortgage Choice: Sensitivity to Default Insurance Costs

Patric H. Hendershott and William C. LaFayette

No 5069, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Purchase of a house requires three interrelated household financial decisions: what level of debt to obtain, whether to select an adjustable or fixed rate mortgage (ARM or FRM) and whether to choose an FHA or a conventional loan. While some have analyzed the mortgage debt decision and the ARM/FRM choice, virtually no one has studied the FHA/conventional mortgage choice or the interrelation among the mortgage debt and instrument decisions. In our sample of 819 young home purchasers, debt and mortgage choice is driven by a need to finesse the downpayment and payment constraint ratios and to lower mortgage insurance costs.

JEL-codes: G11 R20 (search for similar items in EconPapers)
Date: 1995-03
Note: PE
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Published as Journal of Urban Economics, Vol. 41 (1997): 202-217.

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