A Note on Residential Mortgage Selection: Borrower Decisions and Inflation Expectations

Paul M. Taube and Don N. MacDonald ()
Additional contact information
Paul M. Taube: Department of Economics and Accounting University of Texas-Pan American Edinburg, Texas 78539, http://www.coba.panam.edu/ugprgms/ecofin.html
Don N. MacDonald: Department of Finance University of North Texas Denton, Texas 76203, http://www.coba.unt.edu/firel/

Journal of Real Estate Research, 1989, vol. 4, issue 1, 73-79

Abstract: In this note, the choice of mortgage instrument in an inflationary environment was analyzed. Using Federal Home Loan Bank data on the proportion of loans closed as variable-rate mortgages for the period 1981 to 1987, it was found that higher anticipated inflation held with certainty increased this proportion, while greater inflation uncertainty in the sense of a Diamond-Stiglitz mean-preserving spread decreased this proportion. That is, homebuyers appear to prefer fixed-rate mortgages in the presence of inflation uncertainty and to reject lender efforts to shift interest-rate risk through variable-rate mortgages.

JEL-codes: L85 (search for similar items in EconPapers)
Date: 1989
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Citations: View citations in EconPapers (1)

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