English, Article edition: Why Do Borrowers Choose Adjustable-Rate Mortgages over Fixed-Rate Mortgages? : A Behavioral Investigation Masaki Mori; Julian Diaz III; Alan J. Ziobrowski

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Physical Description
  • article
Language
  • English

Edition details

Title
  • Why Do Borrowers Choose Adjustable-Rate Mortgages over Fixed-Rate Mortgages? : A Behavioral Investigation
Author
  • Masaki Mori
  • Julian Diaz III
  • Alan J. Ziobrowski
Physical Description
  • article
Notes
  • RePEc:ire:issued:v:12:n:02:2009:p:98-120
  • A considerable number of U.S. borrowers still choose adjustable rate mortgages (ARMs) over fixed rate mortgages (FRMs) even when interest rates are historically very low. This study examines the psychological reasons for the popularity of ARMs by testing the Prospect theory’s reflection hypothesis. Experiments are conducted using business professionals. The results suggest that psychological factors may explain why ARM borrowers tend to ignore the associated risk factors, focusing heavily upon pricing factors when choosing mortgage type. The results also indicate that borrowers may be viewing mortgage selection as part of a positive choice; namely, acquiring a home.
  • Adjustable-rate mortgage; Fixed-rate mortgage; Prospect theory; Reflection hypothesis; Experiment
  • RePEc:ire:issued:v:12:n:01:2009:p:98-120
Language
  • English
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