Financial Literacy, Risk Aversion and Choice of Mortgage-type by Households

Ruben Cox, D Brounen, Peter Neuteboom

Research output: Contribution to journalArticleAcademicpeer-review

26 Citations (Scopus)

Abstract

This paper analyzes how financial literacy and reported willingness to take financial risk impact a household’s choice of mortgage type. The results show that households reporting higher financial literacy and lower risk aversion are 55 to 97 % more likely to opt for interest-only mortgages. The results are robust to alternative explanations such as the involvement of financial advisors, the effect of peers, experience with prior home-ownership, and house price expectations. In general, alternative mortgage products, as opposed to traditional mortgages, are chosen by wealthier, older, and/or more sophisticated households that are more likely to have a greater understanding of the risks and benefits associated with these products.
Original languageEnglish
Pages (from-to)74-112
Number of pages39
JournalThe Journal of Real Estate Finance and Economics
Volume50
Issue number1
DOIs
Publication statusPublished - 2015

Research programs

  • RSM F&A

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