Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129832
Authors: 
Gathergood, John
Weber, Jörg
Year of Publication: 
2015
Series/Report no.: 
CeDEx Discussion Paper Series 2015-13
Abstract: 
Policymakers have expressed concern that some mortgage holders do not understand or correctly choose their mortgage products, especially alternative mortgage products (AMPs) with back-loaded payments. Using a specially design question module in a UK survey, we investigate the impact of consumer financial sophistication on the decision to choose an AMP over a standard repayment mortgage. We show poor financial literacy and present bias raise the likelihood of choosing an AMP. Financially literate individuals are also more likely to choose an adjustable rate mortgage, suggesting they avoid paying the term premium of a fixed rate mortgage.
Subjects: 
mortgage
financial literacy
present bias
alternative mortgage products
JEL: 
D10
D12
G21
Document Type: 
Working Paper

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