After the great recession: financial sophistication and housing leverage

Kyoung Tae Kim, Martin C. Seay and Hyrum L. Smith

Applied Economics Letters, 2016, vol. 23, issue 18, 1285-1288

Abstract: US households face various choices in saving for retirement, with one of the most common decisions related to maintaining or paying off a mortgage. Using the 2010 and 2013 Survey of Consumer Finances, this study investigates the relationship between financial sophistication and mortgage decisions among middle-age households. A Heckman two-stage selection model is employed to investigate two separate decisions: mortgage holding and loan-to-value (LTV) ratios among mortgage holders. Results indicate that financial sophistication is positively associated with carrying a mortgage and higher LTV ratios. These results imply that financially sophisticated households may be using leverage to increase asset returns.

Date: 2016
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DOI: 10.1080/13504851.2016.1150944

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