Factors Affecting Borrower Choice Between Fixed and Adjustable Rate Mortgages

For this study, data were collected from 352 mortgage borrowers to determine whether mortgage decisions are economically rational with regard to the type of mortgage believed to have the higher expected cost, and how various factors affect mortgage choice. For many borrowers, the type of mortgage with actual higher expected cost (based on interest rates and residency expectations) is not the type of mortgage thought to have the higher expected cost. The financial planning aspect of a mortgage choice and the risk factor have a significant influence on this choice, whereas lender constraints and the financial cost aspect do not. These findings suggest that consumer education programs focusing on mortgage choice are needed.