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:	Refereed Article
Keywords:	mortgages, interest rate, selection bias, endogeneity, IV
Research Division:	Commerce, Management, Tourism and Services
Research Group:	Banking, finance and investment
Research Field:	Financial econometrics
Objective Division:	Expanding Knowledge
Objective Group:	Expanding knowledge
Objective Field:	Expanding knowledge in economics
UTAS Author:	Dungey, M (Professor Mardi Dungey)
UTAS Author:	Yanotti, MB (Dr Maria Yanotti)
ID Code:	127407
Year Published:	2018
Web of Science® Times Cited:	3
Deposited By:	TSBE
Deposited On:	2018-07-26
Last Modified:	2018-12-05
Downloads:	0