Prepayment Behavior of Dutch Mortgagors: An Empirical Analysis
AbstractThe booming Dutch mortgage market and the development of a promising secondary mortgage market in the Netherlands stress the need for an accurate mortgage prepayment model that incorporates typical Dutch market and contract characteristics.One of those typical Dutch features prescribes that each calendar year the mortgagor is allowed to prepay penalty-free 10 to 20 percent of the original loan amount.As a consequence, Dutch mortgagees suffer a loss when borrowers prepay their loans.This risk, once again, underlines the importance of a prepayment model that focuses on the Dutch market.To derive such model we use historical data on mortgages originated between January 1989 and June 1999.We estimate separate models for two popular redemption types: savings mortgages and interest-only mortgages.In both models we allow for suboptimal prepayment behaviour.The results clearly indicate that prepayment rates depend on interest rates and the age of the mortgage contract.Moreover, Dutch prepayment rates peak in the month December.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2001-64.
Date of creation: 2001
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Web page: http://center.uvt.nl
mortgages; econometric models;
Other versions of this item:
- Erwin Charlier & Arjan van Bussel, 2003. "Prepayment Behavior of Dutch Mortgagors: An Empirical Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 31(2), pages 165-204, 06.
- D19 - Microeconomics - - Household Behavior - - - Other
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
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