What homebuyers need to know about the differential risk of mortgages
DOI:
https://doi.org/10.61190/fsr.v22i4.4661Keywords:
Mortgage products, Default risk, Home mortgagesAbstract
Because homeownership represents the largest investment many individuals make, and the credit risks of competing mortgage products are not well understood, we develop a framework to quantify absolute and relative 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 relative risk differences among the competing mortgage products. Results suggest that some mortgage products have a default risk four times larger than fixed-rate loans and default probabilities of 30% in a stressed economy. As a result, homebuyers should consider the credit risk of competing mortgage products before selecting a mortgage.
Downloads
Downloads
Published
Issue
Section
License
Copyright (c) 2013 Academy of Financial Services
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Author(s) retain the copyright and full publishing rights without restriction.
Author(s) grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows reusers to distribute, remix, adapt, and build upon the material in any medium or format, for noncommercial purposes only. Reusers must acknowledge the work's authorship and initial publication in this Journal.
Noncommercial means not primarily intended for or directed towards commercial advantage or monetary compensation.
In addition, FSR grants to the UGA Libraries a worldwide, non-exclusive license to all content published by the Journal, including metadata, that is necessary to publish, transmit, and index the Journal and to preserve its content over time.
