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Individual Homebuyer's Loan Selection under the Differential Risk of Mortgage Products

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  • Che-Chun Lin

Abstract

Because homeownership represents the largest investment many individuals make, and the risks of competing mortgage products are not well understood, we develop a framework to quantify credit risks of mortgage products. We use simulations to examine the default rates of five types of mortgage products under both a normal and stressed economy to examine risk differences among the competing mortgage products. Results suggest that significant default risk differences exist between mortgage products. As a result, in addition to considering characteristics such as differential interest rates, points and fees, and the term of a mortgage, homebuyers should consider the risk differential of competing mortgage products before selecting a mortgage.

Suggested Citation

  • Che-Chun Lin, 2013. "Individual Homebuyer's Loan Selection under the Differential Risk of Mortgage Products," ERES eres2013_6, European Real Estate Society (ERES).
    • Handle: RePEc:arz:wpaper:eres2013_6
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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