An investigation of adjustable-rate mortgage pricing features

An investigation of adjustable-rate mortgage pricing features

Mortgage borrowers face the difficult prospect of evaluating the costs and risks associated with the choice of terms for adjustable-rate mortgages. This study uses a simulation approach to model the choices. We represent the risk of the adjustable-rate mortages with distributions of present value-co...

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Veröffentlicht in:Financial services review (Greenwich, Conn.) Conn.), 2002-12, Vol.11 (4), p.367
Hauptverfasser: Templeton, William K, Main, Robert S, Orris, J.B
Format: Artikel
Sprache:eng
Schlagworte:
Adjustable rate mortgages
Analysis
ARM
Consumer preferences
Costs
Discount rates
Evaluation
Expected values
Federal Reserve monetary policy
Finance
Interest rates
Monte Carlo simulation
Mortgage rates
Planning
Present value
Selection
Simulation
Simulation methods
Software
Standard deviation
Studies
Treasuries
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Zusammenfassung:Mortgage borrowers face the difficult prospect of evaluating the costs and risks associated with the choice of terms for adjustable-rate mortgages. This study uses a simulation approach to model the choices. We represent the risk of the adjustable-rate mortages with distributions of present value-cost differentials for a variety of mortgage life periods. We provide insight on the financial planning aspect by modeling the impact of mortgage-rate changes on the size of payments for adjustable-rate mortgages. Simulation can yield nonintuitive results that may lead to better decision making by borrowers. [PUBLICATION ABSTRACT]
ISSN:1057-0810
1873-5673