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Mortgage rate and choice of mortgage length: A quasi-experimental evidence from Chinese transaction-level data

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  • Ye, Guangliang
  • Deng, Guoying
  • Li, Zhigang

Abstract

Utilizing a large transaction-level dataset on housing mortgages in China, this study estimates the effect of the mortgage rate spread between long- and short-term loans on property purchasers’ choice of loan length. To identify the effect of this spread on loan length, we rely on a unique institutional feature in China—the “dual-track” mortgage scheme. We observe two types of mortgagors in this setting: “normal” mortgagors, who face floating mortgage-rate spreads, and “special mortgagors,” who are entitled to a fixed mortgage rate spread. Using the latter as a comparison group to address the confounding effects of omitted factors, we find that the change in interest rates significantly affects the mortgage decisions of normal mortgagors. When the prime mortgage rate spread increases by ten basis points, the likelihood of such a mortgagor choosing a short-term loan increases by 8.4 percent.

Suggested Citation

  • Ye, Guangliang & Deng, Guoying & Li, Zhigang, 2014. "Mortgage rate and choice of mortgage length: A quasi-experimental evidence from Chinese transaction-level data," Journal of Housing Economics, Elsevier, vol. 25(C), pages 96-103.
    • Handle: RePEc:eee:jhouse:v:25:y:2014:i:c:p:96-103
    DOI: 10.1016/j.jhe.2014.04.006
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    Cited by:

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    2. Xiaorong Zhou & Karen Gibler & Velma Zahirovic-Herbert, 2015. "Asymmetric buyer information influence on price in a homogeneous housing market," Urban Studies, Urban Studies Journal Limited, vol. 52(5), pages 891-905, April.
    3. Dr. Anantha Raj A. Arokiasamy* & Dr. Sam Sarpong, 2019. "Exploring Customer Perceptions on Housing Loan: Evidence from the Malaysian Urban Community," The Journal of Social Sciences Research, Academic Research Publishing Group, vol. 5(8), pages 1193-1203, 08-2019.

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    More about this item

    Keywords

    Mortgage rates; Loan decision; Quasi-experiment; China housing market;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand
    • R28 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Government Policy

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