Dungey, MardiDoko Tchatoka, FirminWells, GraemeYanotti, Maria2016-06-140013-0249http://hdl.handle.net/1885/103563We shed new light on the role of borrower characteristics in mortgage product choice, and how these are impacted by regulatory capital requirements. Using rich loan-level data from the Australian market, we analyse the borrower idiosyncratic risk effects on the choice between variable-rate mortgages and other mortgages with reduced initial payments. We find that income, wealth and mobility risks play a role in product choice. We investigate regulatory capital requirements in a market where banks hold mortgage risk on balance sheet and find that the Basel capital discounts based on loan-to-valee ratios divide otherwise similar borrowers in their mortgage choices.201510.1111/1475-4932.122052016-06-14