Macroeconomic Environment and the Optimal Mortgage Contract Design
||Macroeconomic Environment and the Optimal Mortgage Contract Design
||16th Annual European Real Estate Society Conference in Stockholm, Sweden
||We compare conventional mortgage contract designs like the adjustable rate mortgage and the ¯xed rate mortgage with an alternative mortgage contract design that allows the borrower to bene¯t from interest movements but secures him of any interest rate risk. We investigate the optimal mortgage contract design from both a macroeconomic and the borrower's perspective. Our analysis relies on Monte Carlo Simulations of a risky interest rate, house value and borrower income and distinguishes between di®erent economic trends. We also study the influence of surprising events in the economy on the optimal mortgage contract design."
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