[{"data":1,"prerenderedAt":-1},["ShallowReactive",2],{"detail-sidebar-cat-0-en-105":3,"doc-seo-203324-105":59,"doc-detail-203324-en":131},{"code":4,"msg":5,"data":6},0,"success",[7,13,18,23,28,33,38,43,48,51,55],{"id":8,"doc_module":4,"doc_module_name":9,"category_name":10,"show_sort_weight":11,"slug":12},1,"Document","Story & Novel",90,"story-novel",{"id":14,"doc_module":4,"doc_module_name":9,"category_name":15,"show_sort_weight":16,"slug":17},2,"Literature",80,"literature",{"id":19,"doc_module":4,"doc_module_name":9,"category_name":20,"show_sort_weight":21,"slug":22},4,"Exam",70,"exam",{"id":24,"doc_module":4,"doc_module_name":9,"category_name":25,"show_sort_weight":26,"slug":27},5,"Comic",60,"comic",{"id":29,"doc_module":4,"doc_module_name":9,"category_name":30,"show_sort_weight":31,"slug":32},6,"Technology",50,"technology",{"id":34,"doc_module":4,"doc_module_name":9,"category_name":35,"show_sort_weight":36,"slug":37},7,"Healthcare",40,"healthcare",{"id":39,"doc_module":4,"doc_module_name":9,"category_name":40,"show_sort_weight":41,"slug":42},8,"Research & Report",30,"research-report",{"id":44,"doc_module":4,"doc_module_name":9,"category_name":45,"show_sort_weight":46,"slug":47},9,"Religion & Spirituality",20,"religion-spirituality",{"id":46,"doc_module":4,"doc_module_name":9,"category_name":49,"show_sort_weight":46,"slug":50},"World Cup","world-cup",{"id":52,"doc_module":4,"doc_module_name":9,"category_name":53,"show_sort_weight":52,"slug":54},10,"Lifestyle","lifestyle",{"id":56,"doc_module":4,"doc_module_name":9,"category_name":57,"show_sort_weight":24,"slug":58},19,"General","general",{"code":4,"msg":60,"data":61},"ok",{"site_id":62,"language":63,"slug":64,"title":65,"keywords":66,"description":67,"schema_data":68,"social_meta":124,"head_meta":126,"extra_data":128,"updated_unix":130},105,"en","mortgage-structure-financial-stability-and-risk-sharing","Mortgage Structure - Financial Stability and Risk Sharing","","Adjustable-rate mortgages increase household payment burdens as rates rise, which elevates default risk, whereas fixed-rate mortgages limit borrower payment shocks but shift interest-rate exposure onto lenders. A quantitative model with flexible mortgage contracts, liquidity-driven default behavior, and banks with sticky deposits compares these opposing channels. Financial stability risks are U-shaped in mortgage fixation length, with FRMs aided by deposit stickiness and ARMs enabling net-worth hedging, improving aggregate risk sharing.",{"@graph":69,"@context":123},[70,84,106],{"@type":71,"itemListElement":72},"BreadcrumbList",[73,77,79,82],{"item":74,"name":75,"@type":76,"position":8},"https://docshare.wps.com","Home","ListItem",{"item":78,"name":9,"@type":76,"position":14},"https://docshare.wps.com/document/",{"item":80,"name":40,"@type":76,"position":81},"https://docshare.wps.com/document/research-report/",3,{"item":83,"name":65,"@type":76,"position":19},"https://docshare.wps.com/document/mortgage-structure-financial-stability-and-risk-sharing/203324/",{"url":83,"name":65,"@type":85,"image":86,"author":91,"headline":65,"publisher":94,"fileFormat":97,"inLanguage":63,"description":67,"dateModified":98,"datePublished":99,"encodingFormat":97,"isAccessibleForFree":100,"interactionStatistic":101},"DigitalDocument",{"url":87,"@type":88,"width":89,"height":90},"https://docshare.wps.com/thumbnails/mortgage-structure-financial-stability-and-risk-sharing/203324.png","ImageObject",300,407,{"name":92,"@type":93},"Lute","Person",{"url":74,"name":95,"@type":96},"DocShare","Organization","application/pdf","2026-11-08","2026-09-04",true,{"@type":102,"interactionType":103,"userInteractionCount":105},"InteractionCounter",{"@type":104},"ViewAction",11,{"@type":107,"mainEntity":108},"FAQPage",[109,115,119],{"name":110,"@type":111,"acceptedAnswer":112},"How do adjustable-rate and fixed-rate mortgages affect financial stability differently?","Question",{"text":113,"@type":114},"Adjustable-rate mortgages raise household payments when rates increase, driving defaults and bank credit losses. Fixed-rate mortgages shield households but increase banks’ exposure to interest rate risk.","Answer",{"name":116,"@type":111,"acceptedAnswer":117},"What relationship does the paper find between mortgage fixation length and financial stability risk?",{"text":118,"@type":114},"Financial stability risks follow a U-shaped pattern in mortgage fixation length, where an intermediate fixation length balances the competing effects.",{"name":120,"@type":111,"acceptedAnswer":121},"Why can ARMs improve aggregate risk sharing despite higher default pressure?",{"text":122,"@type":114},"The model shows ARMs provide net-worth hedging: defaults concentrate in states where intermediary net worth is high due to increased mortgage income, reducing volatility in the financial sector.","https://schema.org",{"og:url":83,"og:type":125,"og:title":65,"og:site_name":95,"og:description":67},"article",{"robots":127,"canonical":83},"index,follow",{"doc_id":129,"site_id":62},203324,1788559785,{"code":4,"msg":5,"data":132},{"doc_id":129,"user_id":133,"nickname":92,"user_avatar":134,"doc_module":4,"category_id":39,"category_name":40,"doc_title":65,"doc_description":67,"doc_content":135,"file_id":136,"file_url":137,"file_type":138,"file_size":139,"view_count":105,"is_deleted":4,"is_public":8,"is_downloadable":8,"audit_status":8,"page_count":140,"language":141,"language_code":63,"site_id":62,"html_lang":63,"table_of_contents":142,"faqs":143,"seo_title":144,"seo_description":67,"update_tm":130,"read_time":145,"preview_page_count":4},137454149569,"https://ap-avatar.wpscdn.com/davatar_29158cc5080c5b710cf443261637dec0","Mortgage Structure, Financial Stability, and  \nRisk Sharing ∗  \nVadim Elenev† Johns Hopkins Carey  \nLu Liu‡ Wharton  \nJuly 2025  \nAbstract  \nAdjustable-rate mortgages (ARMs) expose households to rising payments, increasing defaults, while fixed-rate mortgages (FRMs) expose lenders to greater interest rate risk. We evaluate these competing forces in a quantitative model with flexible mortgage contracts, liquidity-driven household default, and a banking sector with sticky deposits. We find financial stability risks are U-shaped in mortgage fixation length. While FRMs benefit from deposit rate stickiness, ARMs provide net worth hedging by concentrating defaultsin states when intermediary net worth is high due to increases in mortgage income. An intermediate fixation length balances these effects, minimizing financial sector volatility and improving aggregate risk sharing.  \nJEL: E52, G21, G28, R31, E44 .  \nKeywords: mortgages, financial stability, interest rate risk, credit risk, fixed-rate, adjustable-rate, risk sharing, intermediary asset pricing, household finance  \n∗ First draft: June 2024 . We thank David Berger, John Campbell, James Choi, Jo˜ao Cocco, Will Diamond, Andreas Fuster, Itay Goldstein, Jo˜ao Gomes, Urban Jermann, Amir Kermani, Arvind Krishnamurthy, Moritz Kuhn, Luc Laeven, Tim Landvoigt, Gregor Matvos, Atif Mian, Stijn Van Nieuwerburgh, Rodney Ramcharan, Alp Simsek, Adi Sunderam, Luis Viceira, Olivier Wang, our discussants Isha Agarwal, Dan Greenwald, Konstantin Milbradt, and Javier Suarez, as well as participants at the AREUEA National Conference, Stanford Junior Macro-Finance Conference, Columbia Workshop in New Empirical Finance, SFS Cavalcade, ECB Annual Conference on Financial Stability and Macroprudential Policy, WFA, NBER Summer Institute (Macro, Money and Financial Frictions), CEPR ESSFM Gerzensee, and seminar participants at Johns Hopkins Carey, CUNY Baruch, University of St. Gallen, University of Zurich, Harvard Business School, Wharton, and the Chicago Fed for helpful discussions and comments. We thank Yizhong Zhang, Yixin Gwee, Yiming Ma and Daniel Wilkerson for excellent research assistance. This paper was previously circulated under the title “A Macro-Finance Model of Mortgage Structure: Financial Stability & Risk Sharing.”  \n†Carey Business School, Johns Hopkins University. Email: [velenev@jhu.edu](velenev@jhu.edu)  \n‡The Wharton School, University of Pennsylvania. Email: [lliu1@wharton.upenn.edu](lliu1@wharton.upenn.edu)  \n1 Introduction  \nMortgage structure matters for macroeconomic outcomes. It affects the transmission of monetary policy, since adjustable-rate mortgages (ARMs) reset more immediately compared to fixed-rate mortgages (FRMs) (e.g. Calza et al. , 2013; Di Maggio et al. , 2017; Fuster and Willen, 2017; Garriga et al. , 2017) . In this paper, we show that mortgage structure also directly shapes financial stability risks. Differences in mortgage structures across countries were brought into sharp relief by the global monetary tightening cycle between 2022 to 2023 . Despite similar policy rate increases of approximately 400 to 500 basis points across major economies, mortgage payments increased by 15 to 25% in countries with ARMs (U.K., Canada, and Euro Area), while remaining stable in the U.S., where 30-year FRMs predominate (Figure 1) .  \nFigure 1: Comparison of Policy Rates and Mortgage Payments, 2022–2023  \n(a) Policy Rates (b) Measure of Mortgage Payments  \nNotes: Panel (a) shows main monetary policy rates for the United States (US), United Kingdom (UK), Euro Area (EA), and Canada (CA) . Panel (b) shows measures of average mortgage payments. EA ARM aggregates Finland, Italy and Portugal. Data sources: US: 2024Q2 revised mortgage debt service ratio (DSR) from FRED; UK: total expected (incl. agreed changes in payments e.g. due to forbearance) monthly mortgage payment from the Financial Conduct Authority (FCA); Euro Area: total DSR from BIS; Canada: average monthly scheduled outstandi","cbCaiesCSX52UizV","https://ap.wps.com/l/cbCaiesCSX52UizV","pdf",2946369,102,"English","# Abstract\n# Introduction","[{\"question\":\"How do adjustable-rate and fixed-rate mortgages affect financial stability differently?\",\"answer\":\"Adjustable-rate mortgages raise household payments when rates increase, driving defaults and bank credit losses. Fixed-rate mortgages shield households but increase banks’ exposure to interest rate risk.\"},{\"question\":\"What relationship does the paper find between mortgage fixation length and financial stability risk?\",\"answer\":\"Financial stability risks follow a U-shaped pattern in mortgage fixation length, where an intermediate fixation length balances the competing effects.\"},{\"question\":\"Why can ARMs improve aggregate risk sharing despite higher default pressure?\",\"answer\":\"The model shows ARMs provide net-worth hedging: defaults concentrate in states where intermediary net worth is high due to increased mortgage income, reducing volatility in the financial sector.\"}]","Mortgage Structure - Financial Stability and Risk Sharing | PDF",257]