Debt Usage and Mortgage Choice: Sensitivity to Default Insurance Costs

47 Pages Posted: 7 Aug 2000 Last revised: 5 Apr 2008

See all articles by Patric H. Hendershott

Patric H. Hendershott

University of Aberdeen - Centre for Property Research; National Bureau of Economic Research (NBER)

William C. LaFayette

Ohio State University (OSU)

Date Written: March 1995

Abstract

Purchase of a house requires three interrelated household financial decisions: what level of debt to obtain, whether to select an adjustable or fixed rate mortgage (ARM or FRM) and whether to choose an FHA or a conventional loan. While some have analyzed the mortgage debt decision and the ARM/FRM choice, virtually no one has studied the FHA/conventional mortgage choice or the interrelation among the mortgage debt and instrument decisions. In our sample of 819 young home purchasers, debt and mortgage choice is driven by a need to finesse the downpayment and payment constraint ratios and to lower mortgage insurance costs.

Suggested Citation

Hendershott, Patric H. and LaFayette, William C., Debt Usage and Mortgage Choice: Sensitivity to Default Insurance Costs (March 1995). NBER Working Paper No. w5069, Available at SSRN: https://ssrn.com/abstract=225847

Patric H. Hendershott (Contact Author)

University of Aberdeen - Centre for Property Research ( email )

Aberdeen AB24 2UF
Scotland

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

William C. LaFayette

Ohio State University (OSU)

2100 Neil Avenue
Columbus, OH OH 43210
United States

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