Adjustable-rate and fixed-rate mortgages: a study of default

Buying a house is one of the most important investments that a person makes during his life. In most cases homeowners do not have enough liquidity and take a mortgage to finance it. This text aims at understanding which is the best type of mortgage to use comparing in particular adjustable-rate and fixed-rate ones that are the most common. Moreover, this document tries to analyze how factors such as negative equity, interest rates and loan size influence default and prepayment considering in particular the 2000s and the impact of the housing bubble crash. The option of strategic default is also presented studying the correlation with elements like propension to risk, expectation about the future, attachment and cultural characteristics.