Mortgage termination due to prepayments in India
AbstractMortgage termination due to prepayment is an important issue in the pricing of mortgage and mortgage-backed securities (MBS) due to its stochastic nature. In developing countries where MBS is not yet fully developed, mortgage termination affects the flow of funds to the lenders. Recent literature has used option price models (OPM) to analyse prepayments. Prepayment is a 'call option' whose price is dependent on fluctuation in market interest rates. However, the termination of mortgage in housing is not as 'ruthless' as OPM theory would suggest, primarily because households are not financiers in a 'strict sense'. Recent literature has used the Cox proportional hazard model to model mortgage termination. The idea is that other household-related variables besides option price of the instrument jointly determine the mortgage termination. The Cox proportional hazard model is used to analyse prepayment of mortgage behaviour in India. The results indicate that financial concerns (like option price, loan to value ratio and monthly principal and interest to income ratio) are important determinants besides household characteristics. Self- employed or low educated or single borrowers have less probability of prepaying the loan. An important variable inducing prepayment is irregular repayment behaviour of borrower. If loan repayment is in arrears for some months, borrowers often terminate their liability by prepaying.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Taylor and Francis Journals in its journal Applied Economics Letters.
Volume (Year): 7 (2000)
Issue (Month): 9 ()
Contact details of provider:
Web page: http://www.tandf.co.uk/journals/routledge/13504851.html
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.