Equilibrium mortgage choice and housing tenure decisions with refinancing

Arbeitspapier

The last decade has brought about substantial mortgage innovation and increased refinancing. The objective of this paper is to understand the determinants and implications of mortgage choice in the context of a general equilibrium model with incomplete markets. The equilibrium characterization allows us to study the impact of mortgage financing decisions in the productive economy. We show the influence of different contract characteristics such as the down payment requirement, repayment structure, and the amortization schedule for mortgage choice. We find that loan products that allow for low or no down payment or an increasing repayment schedule increase the participation of young and lower-income households. We find evidence that the volume of housing transactions increases when the payment profile is increasing and households have little housing equity. In contrast, we show that loans that allow for a rapid accumulation of home equity can still have positive participation effects without increasing the volatility of the housing market. The model predicts that the expansion of mortgage contracts and refinancing improves risk sharing opportunities for homeowners, but the magnitude varies with each contract.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 2007-25

Classification and Topics

• Classification: Wirtschaft ; Computable and Other Applied General Equilibrium Models ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Urban, Rural, Regional, Real Estate, and Transportation Economics: Housing Demand
• Subject: macroeconomics ; housing ; mortgages ; Hypothek ; Immobilienfinanzierung ; Konditionen ; USA

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Chambers, Matthew S. ; Garriga, Carlos ; Schlagenhauf, Don
• Event: Veröffentlichung
• (who): Federal Reserve Bank of Atlanta
• (where): Atlanta, GA
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/70762
• Last update: 10.03.2025, 11:41 AM CET