Skip to main content
Log in

Teaser rates in conventional adjustable-rate mortgage (ARM) markets

  • Published:
The Journal of Real Estate Finance and Economics Aims and scope Submit manuscript


This article examines the pricing of teaser rates on adjustable-rate mortgages (ARMs). The theory indicates that lenders may offset teaser rates on ARMs through an increase in upfront fees or points, through looser life of loan rate caps, or through higher contract rates after the teaser has expired. Cross-sectional regression results fail to reject the null hypothesis that teaser ARMs are correctly priced.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Similar content being viewed by others


  • Buser, S.A., Hendershott, P.H., and Sanders, A.B. “Pricing Life of Loan Rate Caps on Default-Free Adjustable-Rate Mortgages.” AREUEA Journal 13 (Fall 1985), 248–260.

    Google Scholar 

  • Dunn, K.B., and Spatt, C.S. “Private Information and Incentives: Implications for Mortgage Contract Terms and Pricing,” Journal of Real Estate Finance and Economics (April 1988), 47–60.

  • Foster, C., and Van Order, R. “FHA Terminations: A Prelude to Rational Mortgage Pricing.” AREUEA Journal (Fall 1985), 273–291.

  • Guttentag, J.M. “Recent Changes in the Primary Home Mortgage Market.” Housing Finance Review 3 (July 1984), 221–254.

    Google Scholar 

  • Hendershott, P.H. “Mortgage Pricing: What Have We Learned So Far?” AREUEA Journal (Winter 1986), 497–509.

  • Hendershott, P.H., and Shilling, J.D. “Valuing ARM Rate Caps: Implications of 1970–84 Interest Rate Behavior.” AREUEA Journal 13 (Fall 1985), 317–332.

    Google Scholar 

  • Hess, A.C. “Variable Rate Mortgages: Confusion of Means and Ends,” Financial Analysts Journal (January/February 1984), 67–70.

  • Heuson, A. “Institutional Disparities in the Pricing of Adjustable Rate Mortgage Loans.” Journal of Real Estate Finance and Economics 1 (February 1989), 31–46.

    Google Scholar 

  • Kau, J.B., Keenan, D.C., Muller, III, W.J., and Epperson, J. “Valuation and Analysis of Adjustable Rate Mortgages.” Forthcoming, Management Science (December 1990).

  • Lea, M.J. “An Empirical Analysis of the Value of ARM Features.” Housing Finance Review 4 (January 1985), 467–482.

    Google Scholar 

  • Lea, M.J., and Zorn, P.M. “Adjustable-Rate Mortgages, Economic Fluctuations, and Lender Portfolio Change.” AREUEA Journal (Fall 1986), 432–447.

  • Nothaft, F.E. “ARM Debt Outstanding by Lender Type and Firm Size.” Housing Finance Review 3 (October 1984), 447–456.

    Google Scholar 

  • Ott, R.A. “The Duration of an Adjustable-Rate Mortgage and the Impact of the Index.” Journal of Finance (September 1986), 923–933.

  • Sa-Aadu, J., and Sirmans, C.F. “The Pricing of Adjustable Rate Mortgage Contracts.” Journal of Real Estate Finance and Economics 2 (December 1989), 253–266.

    Google Scholar 

  • Stiglitz, J.E., and Weiss, A. “Credit Rationing in Markets with Imperfect Information.” American Economic Review 71 (June 1981), 393–410.

    Google Scholar 

Download references

Author information

Authors and Affiliations


Rights and permissions

Reprints and permissions

About this article

Cite this article

Houston, J.F., Sa-Aadu, J. & Shilling, J.D. Teaser rates in conventional adjustable-rate mortgage (ARM) markets. J Real Estate Finan Econ 4, 19–31 (1991).

Download citation

  • Issue Date:

  • DOI:

Key words