University of Tasmania, Australia

Mortgage Finance Decisions

Project description: One of the most important financial decisions for many households is the characteristic of the mortgage contract taken out on the family home.  Individual households choose between fixed and variable rate products, with differing terms and other contract features. Economic theory suggests that the households are maximizing some utility function in order to make these choices. Empirical evidence at a household level is severely limited by lack of appropriate data. Much existing literature is either calibrated or results from small or generated data sets. This project will examine the empirical evidence for theoretical models of mortgage choice and subsequent behavior of households using a unique database which allows thorough identification and modeling of household finance models. The project provides a unique opportunity to contribute significantly to the academic literature while building skills in theoretical and empirical modeling, unit record data management and estimation techniques. Some of the questions to be addressed include determining which household characteristics are important in mortgage product choice: for example, income, demographic characteristics, wealth effects and household mobility. A second stage of the project would allow investigation of the hazard functions for institutions of mortgage prepayment, and how household characteristics influence payment and default behavior.  The successful candidates will have the opportunity to interact with world class academics both through our strong visitor program attracting top academics to the School of Economics and Finance and via the opportunity to present at international conferences.