Endogeneity in household mortgage choice

Mardi Dungey, Firmin Doko Tchatoka, Maria Yanotti

    Research output: Contribution to journalArticle

    Abstract

    We show that failing to correct for both sample selection and endogeneity bias leads to an under-estimate of the importance of mortgage price in determining the mortgage product a household selects. With proprietary, loan-level data from a major Australian mortgage provider we study interest rate determination, loan size and mortgage product choice. The level of mortgage indebtedness varies with the value and characteristics of the property, while individual mortgage interest rates depend on borrower characteristics. Our results show that borrowers consider the initial interest rate and implicitly the loan amount they can access when choosing a mortgage product.
    Original languageEnglish
    Pages (from-to)30-44pp
    JournalEconomic Modelling
    Volume73
    DOIs
    Publication statusPublished - 2018

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