An Investigation of Adjustable-rate Mortgage Pricing Features

Authors

  • William K. Templeton Butler University
  • Robert S. Main Butler University
  • J. B. Orris Butler University

DOI:

https://doi.org/10.61190/fsr.v11i4.4746

Keywords:

Simulation, Choice, Adjustable-rate mortgage

Abstract

Mortgage borrowers face the difficult prospect of evaluating the costs and risks associated with the choice of terms for adjustable-rate mortgages. This study uses a simulation approach to model the choices. We represent the risk of the adjustable-rate mortages with distributions of present value-cost differentials for a variety of mortgage life periods. We provide insight on the financial planning aspect by modeling the impact of mortgage-rate changes on the size of payments for adjustable-rate mortgages. Simulation can yield nonintuitive results that may lead to better decision making by borrowers.

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Published

2002-12-31

How to Cite

Templeton, W. K., Main, R. S., & Orris, J. B. (2002). An Investigation of Adjustable-rate Mortgage Pricing Features. Financial Services Review, 11(4), 367–379. https://doi.org/10.61190/fsr.v11i4.4746

Issue

Vol. 11 No. 4 (2002): FSR Winter 2002

Section

New Original Submission

License

Copyright (c) 2002 Academy of Financial Services

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