The Journal of Finance publishes leading research across all the major fields of finance. It is one of the most widely cited journals in academic finance, and in all of economics. Each of the six issues per year reaches over 8,000 academics, finance professionals, libraries, and government and financial institutions around the world. The journal is the official publication of The American Finance Association, the premier academic organization devoted to the study and promotion of knowledge about financial economics.
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The Relative Termination Experience of Adjustable to Fixed‐Rate Mortgages
Published: 12/01/1990 | DOI: 10.1111/j.1540-6261.1990.tb03737.x
DONALD F. CUNNINGHAM, CHARLES A. CAPONE
Our study uses a multinomial logit model to analyze the concurrent termination experience of adjustable‐rate and fixed‐rate mortgages. A new set of ARM‐specific interactive determinants expands the conventional FRM specification to isolate the unique termination behavior of ARMs. We find that expected rate adjustments and large lifetime caps are positively related to ARM termination probabilities while long adjustment frequencies are inversely related. Caps, both periodic and lifetime, have a secondary, inverse effect on termination probabilities when interest‐rate movements exceed cap limits. The model also shows that interest‐rate expectations affect FRM terminations more strongly than ARM terminations.