Maturity choice of private mortgage borrowers

Seubert, Ulrich ; Weber, Martin

SSRN-id1960519_WP180.pdf - Published

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URN: urn:nbn:de:bsz:180-madoc-314618
Document Type: Working paper
Year of publication: 2011
The title of a journal, publication series: Working Paper / Lehrstuhl für Finanzierung, Universität Mannheim
Volume: 180
Place of publication: Mannheim
Publication language: English
Institution: Business School > ABWL u. Finanzwirtschaft, insbes. Bankbetriebslehre (Weber 1993-2017)
MADOC publication series: Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre (Weber) > Working Papers
Subject: 330 Economics
Classification: JEL: D14 , E40 , G21 , R39,
Keywords (English): Household finance , mortgage choice , fixed rate mortgage , adjustable rate mortgage
Abstract: This paper asks what factors influence the maturity choice of private mortgage borrowers and if the choice is rational. Using a unique data set from the German market with more than 50,000 financed projects, we find a significant influence of personal and macroeconomic factors. A high income, a low loan value, and a low value to income ratio lead to short maturities; so do economically good times with high GDP growth and low unemployment. In addition, we show that the importance of pricing variables is age dependent and declining for older borrowers. Moreover, we demonstrate that borrowers behave irrational and not according to the recommendations of models on optimal mortgage choice when choosing the maturity of their mortgage.

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