Should Home Buyers Choose a Short- or Long-Term Mortgage?
No Thumbnail Available
Authors
Chung Beak
Khamis M Bilbeisi
Issue Date
Type
Journal Article, Academic Journal
Language
Keywords
Alternative Title
Abstract
The choice of home mortgage term is one of the most difficult decisions for mortgage borrowers; especially, those who can afford a short-term mortgage payment as well as a long-term mortgage payment. Since there are many factors that influence the mortgage term choice with additional investment opportunities, it is not easy to make a clear-cut decision. Using the Monte Carlo simulation, we find that while the individual marginal tax rate is the key factor for mortgage borrowers who plan a short-term home ownership; the mortgage interest rate is the key factor for mortgage borrowers who plan a long-term home ownership. Mortgage term decisions can be quite different due to the opposing effects of major factors we propose. If, however, the home mortgage market correctly reflects information about those factors, it is expected that mortgage borrowers individually have a preference for a short- or long-term mortgage.