Mortgage Prepayments in China and Monetary Policy Transmission

57 Pages Posted: 8 Nov 2024

See all articles by Zhenyu Gao

Zhenyu Gao

The Chinese University of Hong Kong (CUHK) - CUHK Business School

Wenxi Jiang

CUHK Business School, The Chinese University of Hong Kong

Haohan Ren

School of Management, Fudan University

Kemin Wang

Fudan University - School of Management

Yuezhi WU

Fudan University

Date Written: October 01, 2024

Abstract

Despite restrictions on mortgage refinancing, Chinese households prepaid an unprecedented amount of mortgage loans between 2021 and 2023, when the government cut interest rates to combat economic slowdown. Using loan-level data from a large commercial bank in China, we find that households are likely to prepay when the gap between their own mortgage rate and the benchmark rate becomes positive and increases. Evidence further suggests that households prepay with their savings (rather than through refinancing), and the prepayment is associated with household deleveraging and consumption reduction. Combining this with the data of UnionPay card spending, we find macro-level evidence that as the national lending rate decreases, cities with more mortgage borrowers having a positive rate gap tend to experience greater prepayment, consumption reduction, and lending contraction, suggesting counterproductive monetary policy transmission.

Keywords: Mortgage Prepayments, Monetary Policy Transmission, Household Consumption

Suggested Citation

Gao, Zhenyu and Jiang, Wenxi and Ren, Haohan and Wang, Kemin and WU, Yuezhi, Mortgage Prepayments in China and Monetary Policy Transmission (October 01, 2024). Available at SSRN: https://ssrn.com/abstract=4972487 or http://dx.doi.org/10.2139/ssrn.4972487

Zhenyu Gao

The Chinese University of Hong Kong (CUHK) - CUHK Business School ( email )

Cheng Yu Tung Building
12 Chak Cheung Street
Shatin, N.T.
Hong Kong
(852)39431824 (Phone)

HOME PAGE: http://sites.google.com/site/gao515515/

Wenxi Jiang

CUHK Business School, The Chinese University of Hong Kong ( email )

Room 1210, Cheng Yu Tung Building
Chinese University of Hong Kong
Shatin, NT 06520
Hong Kong

HOME PAGE: http://https://sites.google.com/site/jiangwenxi/

Haohan Ren (Contact Author)

School of Management, Fudan University ( email )

No. 670, Guoshun Road
No.670 Guoshun Road
Shanghai, 200433
China

Kemin Wang

Fudan University - School of Management ( email )

No. 670, Guoshun Road
Shanghai, 200433
China

Yuezhi WU

Fudan University ( email )

Beijing West District Baiyun Load 10th
Shanghai, 100045
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
40
Abstract Views
144
PlumX Metrics