A Variable-Rate Loan-Prepayment Model for Australian Mortgages

Abstract

This paper is an investigation of Australian mortgage-loan prepayment from a modelling perspective. A prepayment model for loans of mortgage-backed securities is developed specifically for the Australian mortgage market, and then empirically tested using (Reuters) Australian mortgage-backed security data. The model has origins in the variable-rate loan-prepayment models of the U.S., but is designed and developed to take into account the Australian mortgage-market structure. The model proves very successful when tested empirically, and is able to explain the partial-prepayment features of the Australian market as well as full prepayments.

Keywords

PREPAYMENT MODELLING AUSTRALIAN AND U.S MORTGAGE MARKETS VARIABLE-RATE LOANS FIXED-RATE LOANS MORTGAGE-BACKED SECURITIES MORTGAGE RATES PARTIAL PREPAYMENT INVESTMENTS

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