After the great recession : financial sophistication and housing leverage. Issue 18 (11th December 2016)

• Record Type: Journal Article
• Authors: Kim, Kyoung Tae; Seay, Martin C.; Smith, Hyrum L.
• Is Part Of: Applied economics letters. Volume 23:Issue 18(2016)
• Page Start: 1285
• Page End: 1288
• Publication Date: 2016-12-11
• Subjects: great recession -- financial sophistication -- mortgage -- housing leverage -- survey of consumer finances; D12 -- D14; Economics -- Periodicals; Economics, Mathematical -- Periodicals; 330
• DOI: 10.1080/13504851.2016.1150944
• Languages: English
• ISSNs: 1350-4851

Abstract

ABSTRACT: US households face various choices in saving for retirement, with one of the most common decisions related to maintaining or paying off a mortgage. Using the 2010 and 2013 Survey of Consumer Finances, this study investigates the relationship between financial sophistication and mortgage decisions among middle-age households. A Heckman two-stage selection model is employed to investigate two separate decisions: mortgage holding and loan-to-value (LTV) ratios among mortgage holders. Results indicate that financial sophistication is positively associated with carrying a mortgage and higher LTV ratios. These results imply that financially sophisticated households may be using leverage to increase asset returns.