Adjustable and Fixed Rate Mortgage Termination, Option Values and Local Market Conditions: An Empirical Analysis

REAL ESTATE ECONOMICS, Vol. 24 No. 3

Posted: 5 Apr 1996

Abstract

This paper analyzes the probabilities of prepayment or default for Fixed Rate Mortgages (FRMs) and Adjustable Rate Mortgages (ARMs). Using data from the period 1985-1992, the analysis indicates that the likelihood of prepayment of thirty year FRMs was determined primarily by house price appreciation and personal income growth and the likelihood of prepayment of fifteen year FRMs determined primarily by interest rate changes. ARMs were prepaid less frequently than FRMs, were less likely to be prepaid when interest rates declined and defaulted more often than FRMs. The analysis provides evidence that ARM holders are less mobile than FRM holders.

JEL Classification: G21

Suggested Citation

Vanderhoff, James H., Adjustable and Fixed Rate Mortgage Termination, Option Values and Local Market Conditions: An Empirical Analysis. REAL ESTATE ECONOMICS, Vol. 24 No. 3. Available at SSRN: https://ssrn.com/abstract=9152

James H. Vanderhoff (Contact Author)

Rutgers University ( email )

360 ML King Jr. Blvd.
Newark, NJ 07102
United States
973-353-5256 (Phone)
973-353-5259 (Fax)

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