TY  - JOUR
AU  - Koijen,Ralph S.J
AU  - Hemert,Otto Van
AU  - Nieuwerburgh,Stijn Van
TI  - Mortgage Timing
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13361
PY  - 2007
Y2  - September 2007
UR  - http://www.nber.org/papers/w13361
L1  - http://www.nber.org/papers/w13361.pdf
N1  - Author contact info:
Ralph Koijen
University of Chicago
Booth School of Business
5807 South Woodlawn Avenue
Chicago, IL 60637
Tel: 773/834-4199
E-Mail: ralph.koijen@chicagobooth.edu

Otto van Hemert
AQR Capital Management
E-Mail: otto.vanhemert@gmail.com

Stijn Van Nieuwerburgh
Stern School of Business
New York University
44 W 4th Street, Suite 9-120
New York, NY 10012
Tel: 646/284-4141
Fax: 646/284-4141
E-Mail: svnieuwe@stern.nyu.edu
AB  - The fraction of newly-originated mortgages that are of the adjustable-rate (ARM) versus the fixed-rate (FRM) type exhibits a surprising amount of time variation. A simple utility framework of mortgage choice points to the bond risk premium as theoretical determinant: when the bond risk premium is high, FRM payments are high, making ARMs more attractive. We confirm empirically that the bulk of the time variation in household mortgage choice can be explained by time variation in the bond risk premium. This is true regardless of whether bond risk premia are measured using forecasters' data, a VAR term structure model, or a simple rule-of-thumb based on adaptive expectations. This simple rule-of-thumb moves in lock-step with mortgage choice, thereby lending further credibility to a theory of strategic mortgage timing by households.
ER  -