Mortgage Interest Rates, Country Risk and Maturity Matching in Colombia

32 Pages Posted: 30 Apr 2007 Last revised: 15 Oct 2009

See all articles by Arturo José Galindo

Arturo José Galindo

Inter-American Development Bank

Marc Hofstetter

Universidad de los Andes

Date Written: April 1, 2007

Abstract

In this paper we explore the determinants of mortgage loans interest rates in Colombia during the period January 2002-June 2006. We find that the main macroeconomic determinant is public debt interest rates. At a micro level we find that credit risk is the main determinant. We show and analyze the tight relationship between country risk and mortgage debt interest rates. This relationship has been growing over time as banks increased their share of long term liabilities, in an effort to reduce the maturity mismatch that characterized their balance sheets prior to the 1998-99 financial crisis. Nevertheless, the reduction in the maturity mismatch has left mortgage rates more exposed to country risk variations.

Keywords: Country Risk, interest rates, mortgage debt, credit risk

JEL Classification: G12, G15, G18, G21,G32

Suggested Citation

Galindo, Arturo José and Hofstetter, Marc, Mortgage Interest Rates, Country Risk and Maturity Matching in Colombia (April 1, 2007). Documento CEDE No. 2008-02, Available at SSRN: https://ssrn.com/abstract=983244 or http://dx.doi.org/10.2139/ssrn.983244

Arturo José Galindo (Contact Author)

Inter-American Development Bank ( email )

1300 New York Avenue NW
Washington, DC 20577
United States

Marc Hofstetter

Universidad de los Andes ( email )

Carrera Primera # 18A-12
Bogota, DC D.C. 110311
Colombia

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