2013 Conference

Financial Services

The mortgage crisis of the last few years has raised the important question of whether or not consumers are making appropriate decisions when it comes to mortgage types. Specifically, do consumers know when to choose an adjustable rate mortgage type versus a fixed rate mortgage type? Further, does mortgage information help consumers to make the correct decision? This study uses unique data in which consumers were randomly assigned to receive information explaining the difference between these two major mortgage types. Consumers were then given two distinct situations where one of these mortgages was more appropriate than the other. Logistic regression is used to determine the odds of consumers making the correct decision in the situations. The results suggest that mortgage information does indeed make a different in consumers selecting the appropriate mortgage type. Factors such as overall financial knowledge and the score on a Truth-in-Lending Act quiz are also important predictors of choosing the correct mortgage.  Not all consumers who were exposed to financial information made the correct decision which supports the continued use of mortgage counselors and or educational programs to further assist consumers in selection the best mortgage type for their situation.