Adjustable vs. Fixed Rate Mortgages

From the Paper:

"In the early 1980s, most mortgage lenders were making long-term, fixed-rate loans only, and at the same time, most of the funds used to make such loans came from short-term deposits. This was a mismatch that meant that lenders were vulnerable to short-run increases in the cost of deposits, while at the same time the yields from their portfolios responded relatively slowly to rising interest rates. To solve this problem, Adjustable Rate Mortgages (ARMs) were introduced into widespread use in 1981. They were difficult to market at first as homebuyers were accustomed to fixed-rate mortgages (FRMs), and they liked the security of locking in a fixed monthly payment. FRMs became an unaffordable luxury when interest rates increased to the range of 14 to 18 percent. ARMs attracted more borrowers, and this type..."

More papers on Adjustable vs. Fixed Rate Mortgages:

• Research Paper # 20998 : "Real Estate Mortgages"
• Dissertation or Thesis # 107805 : "Modeling Interest Rate Risk Management"
• Term Paper # 95494 : "Exchange Rate Systems"

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