Prepayment risk of public housing mortgages

Abstract

This paper examines the determinants of prepayment risk of mortgages for Singapore public housing, which are adjustable rate mortgages. An understanding of the prepayment risk of mortgages is important because prepayments affect investor return from investing in mortgage-backed securities. The findings show that prepayment is positively related to market sentiments and the interest rate of public mortgages. Conversely, it is negatively related to income growth and the relative difference between private and public housing prices. The findings further imply that the prepayment rate of public mortgages is directly affected by any policies that enhance the affordability of residents of public housing to move to private housing.