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Endogeneity in household mortgage choice

Dungey, M ORCID: 0000-0003-0074-2314, Tchatoka, FD and Yanotti, MB ORCID: 0000-0001-9797-9582 2018 , 'Endogeneity in household mortgage choice' , Economic Modelling, vol. 73 , pp. 30-44 , doi: 10.1016/j.econmod.2018.03.001.

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Abstract

We show that failing to correct for both sample selection and endogeneity bias leads to an under-estimate of the importance of mortgage price in determining the mortgage product a household selects. With proprietary, loan-level data from a major Australian mortgage provider we study interest rate determination, loan size and mortgage product choice. The level of mortgage indebtedness varies with the value and characteristics of the property, while individual mortgage interest rates depend on borrower characteristics. Our results show that borrowers consider the initial interest rate and implicitly the loan amount they can access when choosing a mortgage product.

Item Type: Article
Authors/Creators:Dungey, M and Tchatoka, FD and Yanotti, MB
Keywords: mortgages, interest rate, selection bias, endogeneity, IV
Journal or Publication Title: Economic Modelling
Publisher: Elsevier Science Bv
ISSN: 0264-9993
DOI / ID Number: 10.1016/j.econmod.2018.03.001
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