Financial literacy, present bias and alternative mortgage products
Choosing a mortgage is one of the most important financial decisions made by a household. Financial innovation has given rise to more complex mortgage products with back-loaded payments, known as ‘Alternative Mortgage Products’ (AMPs), or ‘Interest-Only Mortgages’. Using a specially designed questio...
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| Format: | Article |
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Elsevier
2017
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| Online Access: | https://eprints.nottingham.ac.uk/40288/ |
| _version_ | 1848796025696813056 |
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| author | Gathergood, John Weber, Jörg |
| author_facet | Gathergood, John Weber, Jörg |
| author_sort | Gathergood, John |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | Choosing a mortgage is one of the most important financial decisions made by a household. Financial innovation has given rise to more complex mortgage products with back-loaded payments, known as ‘Alternative Mortgage Products’ (AMPs), or ‘Interest-Only Mortgages’. Using a specially designed question module in a representative survey of UK mortgage holders, we investigate the effect of consumer financial sophistication on the decision to choose an AMP instead of a standard repayment mortgage. We show poor financial literacy and present bias raise the likelihood of choosing an AMP. Financially literate individuals are also more likely to choose an Adjustable Rate Mortgage (ARM), suggesting they avoid paying the term premium of a fixed rate mortgage. |
| first_indexed | 2025-11-14T19:41:25Z |
| format | Article |
| id | nottingham-40288 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| last_indexed | 2025-11-14T19:41:25Z |
| publishDate | 2017 |
| publisher | Elsevier |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-402882020-05-04T18:36:00Z https://eprints.nottingham.ac.uk/40288/ Financial literacy, present bias and alternative mortgage products Gathergood, John Weber, Jörg Choosing a mortgage is one of the most important financial decisions made by a household. Financial innovation has given rise to more complex mortgage products with back-loaded payments, known as ‘Alternative Mortgage Products’ (AMPs), or ‘Interest-Only Mortgages’. Using a specially designed question module in a representative survey of UK mortgage holders, we investigate the effect of consumer financial sophistication on the decision to choose an AMP instead of a standard repayment mortgage. We show poor financial literacy and present bias raise the likelihood of choosing an AMP. Financially literate individuals are also more likely to choose an Adjustable Rate Mortgage (ARM), suggesting they avoid paying the term premium of a fixed rate mortgage. Elsevier 2017-02-04 Article PeerReviewed Gathergood, John and Weber, Jörg (2017) Financial literacy, present bias and alternative mortgage products. Journal of Banking and Finance, 78 . pp. 58-83. ISSN 1872-6372 mortgages financial literacy present bias alternative mortgage products http://www.sciencedirect.com/science/article/pii/S0378426617300316 doi:10.1016/j.jbankfin.2017.01.022 doi:10.1016/j.jbankfin.2017.01.022 |
| spellingShingle | mortgages financial literacy present bias alternative mortgage products Gathergood, John Weber, Jörg Financial literacy, present bias and alternative mortgage products |
| title | Financial literacy, present bias and alternative mortgage products |
| title_full | Financial literacy, present bias and alternative mortgage products |
| title_fullStr | Financial literacy, present bias and alternative mortgage products |
| title_full_unstemmed | Financial literacy, present bias and alternative mortgage products |
| title_short | Financial literacy, present bias and alternative mortgage products |
| title_sort | financial literacy, present bias and alternative mortgage products |
| topic | mortgages financial literacy present bias alternative mortgage products |
| url | https://eprints.nottingham.ac.uk/40288/ https://eprints.nottingham.ac.uk/40288/ https://eprints.nottingham.ac.uk/40288/ |