Financial literacy, risk aversion and choice of mortgage type by households
Cox,R. Brounen,Dirk Neuteboom,P.
Cox,R.
Brounen,Dirk
Neuteboom,P.
Abstract
This paper analyzes how financial literacy and reported willingness to take financial risk impact a household’s choice of mortgage type. The results show that households reporting higher financial literacy and lower risk aversion are 55 to 97 % more likely to opt for interest-only mortgages. The results are robust to alternative explanations such as the involvement of financial advisors, the effect of peers, experience with prior home-ownership, and house price expectations. In general, alternative mortgage products, as opposed to traditional mortgages, are chosen by wealthier, older, and/or more sophisticated households that are more likely to have a greater understanding of the risks and benefits associated with these products.
Description
Date
2015-01-08
Journal Title
Journal ISSN
Volume Title
Publisher
Research Projects
Organizational Units
Journal Issue
Keywords
Financial literacy, Mortgage choice, Risk aversion, Alternative mortgage products, SDG 8 - Decent Work and Economic Growth
Citation
Cox, R, Brounen, D & Neuteboom, P 2015, 'Financial literacy, risk aversion and choice of mortgage type by households', Journal of Real Estate Finance and Economics, vol. 50, no. 1, pp. 74-112. https://doi.org/10.1007/s11146-013-9453-9
License
info:eu-repo/semantics/closedAccess