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Debt Usage and Mortgage Choice: Sensitivity to Default Insurance Costs

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  • Patric H. Hendershott
  • William C. LaFayette

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

  • Patric H. Hendershott & William C. LaFayette, 1995. "Debt Usage and Mortgage Choice: Sensitivity to Default Insurance Costs," NBER Working Papers 5069, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:5069
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    References listed on IDEAS

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    Cited by:

    1. William C. LaFayette & Donald R. Haurin & Patric H. Hendershott, 1995. "Endogenous Mortgage Choice, Borrowing Constraints and the Tenure Decision," NBER Working Papers 5074, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General

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