Capital structure, the adjusted present value, and mortgage choice
Year: 2025
Type: article
Abstract: Choosing the right combination of interest rate and discount points is important for real estate investors to minimize their cost of capital. This paper subscribes to Myers’ (1974) adjusted present value method to study the effect of capital structure on the mortgage choice. An important result of this paper is that an investor’s risk aversion coefficient does not affect the investor’s mortgage choice. Our framework relies on the daily observable, and objectively and market-determined interest rates and, by avoiding the need to estimate a risk-adjusted discount rate, offers a simpler and cleaner platform for empirical tests on the mortgage choice questions.
Source: Journal of Housing Economics
Authors: Dogan Tirtiroglu, Ercan Tirtiroglu
Language: English
Topic: Housing Market and Economics
Subfield: Economics and Econometrics
Domain: Social Sciences
Open Access status: hybrid
Estimated APC paid: $3,490
OpenAlex ID: W4409571892