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The Allocation of Risk: Some Implications of Fixed versus Index-Linked Mortgages

Published online by Cambridge University Press:  06 April 2009

Jerome B. Baesel  and
Nahum Biger
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Extract

Whether borrowers or lenders gain or lose due to inflation depends upon the nominal rate agreed to, the realized inflation rate and their inflationary expectations when the contract was written. The high rate of inflation in recent years has resulted in the real interest rates on traditional, fixed–rate mortgages being substantially below the nominal, contract rate. This recent experience has stimulated borrowers and lenders to consider the implications of inflation in their contract negotiations.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 15 , Issue 2 , June 1980 , pp. 457 - 468
Copyright
Copyright © School of Business Administration, University of Washington 1980

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References

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