IDEAS home Printed from https://ideas.repec.org/a/bla/reesec/v15y1987i3p132-151.html
   My bibliography  Save this article

Consumer Welfare Under the Adjustable‐Rate Mortgage: Some Empirical Evidence

Author

Listed:
  • J. Sa‐Aadu

Abstract

The theoretical literature on the economics of mortgage choice holds that consumer‐borrower preference for the ARM depends largely on the FRM‐ARM rate differential. However, there is no empirical evidence as to whether consumers are better off, worse off, or left indifferent with the choice of the ARM relative to the alternative FRM. This paper estimates the windfall gain or loss induced by the FRM‐ARM rate differential in a multiperiod setting. The major results are as follows: (1) on the average consumer‐borrowers reap windfall gain from the use of ARM, (2) but some individual consumers had windfall loss, (3) consumers with ARMs that have periodic interest‐rate caps have significantly higher windfall gain than consumers whose ARMs have no periodic rate caps, and (4) the level of the windfall gain (loss) appears to be correlated with the slope of the yield curve and the level of interest rate.

Suggested Citation

  • J. Sa‐Aadu, 1987. "Consumer Welfare Under the Adjustable‐Rate Mortgage: Some Empirical Evidence," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 15(3), pages 132-151, September.
    • Handle: RePEc:bla:reesec:v:15:y:1987:i:3:p:132-151
    DOI: 10.1111/1540-6229.00424
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1540-6229.00424
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1540-6229.00424?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yao-Min Chiang & Jarjisu Sa-Aadu, 2014. "Optimal Mortgage Contract Choice Decision in the Presence of Pay Option Adjustable Rate Mortgage and the Balloon Mortgage," The Journal of Real Estate Finance and Economics, Springer, vol. 48(4), pages 709-753, May.
    2. Stephen F. Thode, 2000. "CMOs, Duration Risk and a New Mortgage," Journal of Real Estate Research, American Real Estate Society, vol. 19(1), pages 73-103.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:reesec:v:15:y:1987:i:3:p:132-151. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/areueea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.