In many countries, house prices are overvalued according to price-to-income ratios. We propose that the borrower s ability to pay through a mortgage is a long-run house price fundamental and find convincing evidence by means of cointegration tests, granger causality, and an elasticity of house...

Many households have only one major asset, a house, which is usually financed through a mortgage contract. One of the most important financial decisions a household has to make is therefore the choice of mortgage type. These can be broadly described as falling into one of two categories: the...