Nº 20-97: Climate Change Risk and the Cost of Mortgage Credit

We show that lenders charge higher interest rates for mortgages on properties exposed to a greater risk of Sea Level Rise (SLR). This SLR premium is not evident in short-term loans and is not related to borrowers’ short-term realized default or creditworthiness. Further, the SLR premium is smaller when the consequences of climate change are less salient and in neighborhoods with more climate change deniers. Overall, our results suggest that mortgage lenders view the risk of SLR as a long-term risk, and that lack of attention and beliefs are potential barriers that inhibit the pricing of climate-related risk in residential mortgage markets.