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Financial Literacy and the Use of Interest-Only Mortgages

Financial Literacy and the Use of Interest-Only Mortgages <p>This study explored the relationship between financial literacy and the use of interest-only mortgages using data from the 2009 National Financial Capability Study (NFCS). A series of analyses were conducted to investigate characteristics associated with the use of an interest-only mortgage as a primary mortgage, as compared to fixed-rate mortgage and adjustable-rate mortgage (ARM) options. Consistent results indicate the individuals who incorrectly answered questions related to compound interest, mortgages, and diversification were more likely to be using an interest-only mortgage. Respondents with higher reported math skills were less likely to use an interest-only mortgage, whereas individuals with higher levels of financial confidence were more likely to be using one. These results reinforce concerns about a household’s ability to understand and evaluate complex mortgage products.</p> http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Counseling and Planning Springer Publishing

Financial Literacy and the Use of Interest-Only Mortgages

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Publisher
Springer Publishing
ISSN
1052-3073
eISSN
1947-7910
DOI
10.1891/1052-3073.28.2.168
Publisher site
See Article on Publisher Site

Abstract

<p>This study explored the relationship between financial literacy and the use of interest-only mortgages using data from the 2009 National Financial Capability Study (NFCS). A series of analyses were conducted to investigate characteristics associated with the use of an interest-only mortgage as a primary mortgage, as compared to fixed-rate mortgage and adjustable-rate mortgage (ARM) options. Consistent results indicate the individuals who incorrectly answered questions related to compound interest, mortgages, and diversification were more likely to be using an interest-only mortgage. Respondents with higher reported math skills were less likely to use an interest-only mortgage, whereas individuals with higher levels of financial confidence were more likely to be using one. These results reinforce concerns about a household’s ability to understand and evaluate complex mortgage products.</p>

Journal

Journal of Financial Counseling and PlanningSpringer Publishing

Published: Jan 1, 2017

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