Authors: Green, Richard K.; Wachter, Susan M.

Source: The Journal of Economic Perspectives, Volume 19, Number 4, Fall 2005 , pp. 93-114(22)

Publisher: American Economic Association

Abstract:

The U.S. mortgage before the 1930s would be nearly unrecognizable today: it featured variable interest rates, high down payments and short maturities. The authors compare the form of U.S. home mortgages today with those in other countries. The U.S. mortgage provides many more options to borrowers than are commonly provided elsewhere: American homebuyers can choose whether to pay a fixed or floating rate of interest; they can lock in their interest rate in between the time they apply for the mortgage and the time they purchase their house; they can choose the time at which the mortgage rate resets; they can choose the term and the amortization period; they can prepay freely; and they can generally borrow against home equity freely. They can also obtain home mortgages at attractive terms with very low down payments. The authors discuss the nature of the U.S. government intervention in home mortgage markets that has led to the specific choices available to American homebuyers. They believe that the unique characteristics of the U.S. mortgage provide substantial benefits for American homeowners and the overall stability of the economy.

Document Type: Research article

DOI: http://dx.doi.org/10.1257/089533005775196660

Publication date: 2005-09-01

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• The Journal of Economic Perspectives (JEP) attempts to fill a gap between the general interest press and most other academic economics journals. The journal aims to publish articles that will serve several goals: to synthesize and integrate lessons learned from active lines of economic research; to provide economic analysis of public policy issues; to encourage cross-fertilization of ideas among the fields of thinking; to offer readers an accessible source for state-of-the-art economic thinking; to suggest directions for future research; to provide insights and readings for classroom use; and to address issues relating to the economics profession.
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