Individual Homebuyer's Loan Selection under the Differential Risk of Mortgage Products
||Individual Homebuyer's Loan Selection under the Differential Risk of Mortgage Products
||20th Annual European Real Estate Society Conference in Vienna, Austria
||Because homeownership represents the largest investment many individuals make, and the risks of competing mortgage products are not well understood, we develop a framework to quantify 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 risk differences among the competing mortgage products. Results suggest that significant default risk differences exist between mortgage products. As a result, in addition to considering characteristics such as differential interest rates, points and fees, and the term of a mortgage, homebuyers should consider the risk differential of competing mortgage products before selecting a mortgage.
||Home mortgages, Default risk, Mortgage products, Loan selection, Exotic mortgages
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||D-2: Housing Markets & Economics
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