Mortgagor motivations in prepayments for adjustable rate mortgages

Abstract

This paper provides the first rigorous analysis of residential adjustable mortgage prepayment using individual ARM mortgage data in Singapore. The prepayment rate for residential mortgages is low and is dominated more by macroeconomic factors than mortgage-specific factors. Specifically, the prepayment rate is increasing in residential property prices, but decreasing in income as proxied by GDP and volatility in mortgage rates. There is weak evidence to suggest that prepayment is increasing in the borrower's age, mortgage rate hikes, cash-availability variables and sentiments of the stock market, and decreasing in the price premium over valuation, payment-to-income ratio, loan-to-value ratio, loan term and floor level of the property.