The Optimal Mortgage Payment Path Under Price Uncertainty

L. Dwayne Barney and Harry White

Real Estate Economics, 1986, vol. 14, issue 3, 406-413

Abstract: It has been shown that in a world of certainty, individuals with rising income streams will choose a graduated payment mortgage over the standard flat payment mortgage. The present paper extends this analysis by introducing uncertainty about future inflation rates. We show that the risk‐averse individual, when faced with uncertainty, will choose a less graduated payment path than in the certainty situation. While not conclusive, the analysis may cast some doubt on the suboptimality of the standard flat payment mortgage.

Date: 1986
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