Prepayment Behavior of Dutch Mortgagors

An Empirical Analysis

E. Charlier, A. van Bussel

Research output: Working paperDiscussion paperOther research output

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Abstract

The 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.
Original languageEnglish
Place of PublicationTilburg
PublisherEconometrics
Number of pages34
Volume2001-64
Publication statusPublished - 2001

Publication series

NameCentER Discussion Paper
Volume2001-64

Fingerprint

Prepayment
Empirical analysis
Mortgages
Loans
Mortgage market
Calendar
Penalty
Interest rates
Mortgage prepayment
Savings
The Netherlands

Keywords

  • mortgages
  • econometric models

Cite this

Charlier, E., & van Bussel, A. (2001). Prepayment Behavior of Dutch Mortgagors: An Empirical Analysis. (CentER Discussion Paper; Vol. 2001-64). Tilburg: Econometrics.
Charlier, E. ; van Bussel, A. / Prepayment Behavior of Dutch Mortgagors : An Empirical Analysis. Tilburg : Econometrics, 2001. (CentER Discussion Paper).
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Charlier, E & van Bussel, A 2001 'Prepayment Behavior of Dutch Mortgagors: An Empirical Analysis' CentER Discussion Paper, vol. 2001-64, Econometrics, Tilburg.

Prepayment Behavior of Dutch Mortgagors : An Empirical Analysis. / Charlier, E.; van Bussel, A.

Tilburg : Econometrics, 2001. (CentER Discussion Paper; Vol. 2001-64).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

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N2 - The 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.

AB - The 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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Charlier E, van Bussel A. Prepayment Behavior of Dutch Mortgagors: An Empirical Analysis. Tilburg: Econometrics. 2001. (CentER Discussion Paper).