Consumer Decision Making for Residential Mortgages

The housing market is a key component of the US economy. Stability of the housing market and equity of residential property help to determine consumer confidence and their net worth. Confidence for homeowners is key to any consumer driven economy like that of the United States. However, a decade of low interest rate, lack of a basic credit standard, greed, and competitions among lending institutions created a housing bubble that eventually burst around the middle of 2007. This caused a severe financial meltdown in 2008. While other papers look at the meltdown from a financial market perspective, this paper will look into consumers´ ability and biases towards selection of a quality mortgage. We examine various factors including educational background, risk aversion, investment self efficacy, and social position that influence consumers´ ability to choose an appropriate mortgage. The results indicate that investment self efficacy has at least some impact on the quality of the mortgage decision.