The Loan Structure and Housing Tenure Decisions in an Equilibrium Model of Mortgage Choice

By Matthew S. Chambers, Carlos Garriga, D. Schlagenhauf. 2007

157 citations recorded by the source corpus.

The objective of this paper is to understand how loan structure affects (i) the borrower's selection of a mortgage contract and (ii) the aggregate economy. We develop a quantitative equilibrium theory of mortgage choice where households can choose from a menu of long-term (norminal) mortgage loans. The model accounts for observed patterns in housing consumption, ownership, and portfolio allocations. We find that the loan structure is a quantitatively significant factor in a household's housing finance decision. The model suggests that the mortgage structure preferref by a household is dependent on age and income and that loan products with low initial payments offer an alternative to mortgages with no downpayment. These effects are more important when inflation is low. The presence of inflation reduces the real value of the mortgage payment and the outstanding loan over time, thereby reducing mobility. Changes in the structure of mortgages have implications for risk sharing. (Copyright: Elsevier)

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/dbb9250b3f0c4d05631b8ff6dd90374149ccd882

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Citations in the corpus

The Distribution of Debt Across Euro Area Countries: The Role of Individual Characteristics, Institutions and Credit Conditions (2013, unknown): “[10] Chambers M.”
A Dynamic Model of Housing Demand: Estimation and Policy Implications (2010, background): “log (yit) = 0 + 1ageit + 2age 2 it + 3birthcohorti + i + itzit zit = zit 1 + it it N(0; 2 ) it N(0; 2 ) i N(0; 2 ) (8)”
CONSUMPTION AND SAVING OVER THE LIFE CYCLE: HOW IMPORTANT ARE CONSUMER DURABLES? (2011, background): “Important examples of this work include Hurst and Stafford (2004), Luengo-Prado (2006), and Chambers et al. (2009a, 2009b).”