Financial literacy, present bias and alternative mortgage products

Arbeitspapier

Policymakers have expressed concern that some mortgage holders do not understand or correctly choose their mortgage products, especially alternative mortgage products (AMPs) with back-loaded payments. Using a specially design question module in a UK survey, we investigate the impact of consumer financial sophistication on the decision to choose an AMP over a standard repayment mortgage. We show poor financial literacy and present bias raise the likelihood of choosing an AMP. Financially literate individuals are also more likely to choose an adjustable rate mortgage, suggesting they avoid paying the term premium of a fixed rate mortgage.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CeDEx Discussion Paper Series ; No. 2015-13

Classification and Topics

• Classification: Wirtschaft ; Household Behavior: General ; Consumer Economics: Empirical Analysis ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages
• Subject: mortgage ; financial literacy ; present bias ; alternative mortgage products

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Gathergood, John ; Weber, Jörg
• Event: Veröffentlichung
• (who): The University of Nottingham, Centre for Decision Research and Experimental Economics (CeDEx)
• (where): Nottingham
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/129832
• Last update: 10.03.2025, 11:43 AM CET