Selection of short-term fixed interest rate mortgages in an emerging market: the case of Lithuania
ENThe choice of a short-term fixed mortgage rate may impact greatly on a household’s financial situation (Campbell and Cocco, 2003). A number of empirical studies have investigated household characteristics as determinants for mortgage interest rate choices. Previous empirical research relating household characteristics to the homeowner’s choice of mortgage type used data from well-established mortgage markets.1 In this paper, we analyze how borrower characteristics influence the choice between the short-term fixed-rate mortgage (STFRM) and the long-term fixed-rate mortgage (LTFRM) types in an emerging market. We use the national Survey of Households with Housing Loans conducted by the Bank of Lithuania between 2009 and 2012. This paper is the first to empirically test the findings of Campbell and Cocco in an emerging market. Following the model of Campbell and Cocco (2003), our analysis focuses on the interaction of demand and supply. We focus on the contract outcome; we do not specify who initiated such outcome – the household or the mortgage provider. We supplement the findings of previous literature by testing the model among financially constrained households in a different economic and institutional setting; that is, in Lithuania.
