Banking advice on fixed or adjustable mortgage rates

Abstract

Since the mid-1990s, Sweden has experienced a period of rapidly rising property prices, and household indebtedness has kept an even pace. The choice between fixed and adjustable interest rates has become increasingly important. This article analyses mortgage rate advice issued by a bank adviser in monthly newsletters during the period 2001–2009, focusing on the content and searching for patterns that may be related to earlier findings. The banking advice is classified into two dimensions: the content and the strength of advice. We find that a large part of the advice suggests that borrowers divide their loans and choose both adjustable and fixed interest rates. Contrary to existing literature, there is no apparent association between the advice provided and interest rate trends (neither short- nor long-term trends). Nor do we find a significant association between the advice and the interest rate gap between fixed and variable rates. This finding implies that the advice in these newsletters was formulated on a rather unclear basis and was of limited use for borrowers.