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How do Interest Rate Changes Affect Mortgage Curtailments? Evidence from China

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  • Weida Kuang
  • Chunlin Liu
  • Qun Wu
  • Hongchao Zeng

Abstract

This study uses a unique data set of adjustable‐rate mortgages in China to investigate the effect of interest rate changes on mortgage curtailments. A distributed lag model shows that on average, the cumulative curtailment over four months increases by about RMB 1,856 in response to a 1 percentage point increase in interest rates. Further analyses show that the degree of responsiveness of mortgage curtailments depends on the direction of the interest rate changes: curtailments are more responsive to interest rate increases than to decreases. We also find significant heterogeneity in borrowers’ curtailment responses.

Suggested Citation

  • Weida Kuang & Chunlin Liu & Qun Wu & Hongchao Zeng, 2021. "How do Interest Rate Changes Affect Mortgage Curtailments? Evidence from China," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 49(S2), pages 395-427, September.
  • Handle: RePEc:bla:reesec:v:49:y:2021:i:s2:p:395-427
    DOI: 10.1111/1540-6229.12285
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