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Discounting in Mortgage Markets (Allen J. J., Clark C. R., Houde J.-F.)

Interest Rates Mortgage

Abstract This paper studies discounting in mortgage markets. Using transaction-level data on Canadian mortgages, we document that over time there has been an increase in the average discount, along with substantial dispersion. The standard explanation for dispersion in credit markets is that lenders engage in risk-based pricing. Our setting is unique since contracts are guaranteed by government-backed insurance, meaning risk cannot be the main driver of dispersion. We find that mortgage rates depend on individual, contractual, and shopping market characteristics. There is also an important amount of unobserved heterogeneity in rates, which could be attributed to search costs.
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Libref/ Allen J. J., Clark C. R., Houde J.-F. (2011) "Discounting in Mortgage Markets", pp. 1 - 43
© Программирование — Александр Красильников, 2008
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