An Empirical Research on Heterogeneity of Mortgage Prepayment Behavior: Focusing on Debtor’s Income and Age Level

Abstract

This empirical research conducted survival analysis on fixed rate mortgage loans to examine the existence of heterogeneity on prepayment behavior by debtors’ income and age level characteristics. The loans studied originated between 2010 and 2015, and were acquired from Korea Housing Finance Corporation. Income-wise, debtors belonging to the median level group and age wise, those belonging to the youngest ‘X generation’ demonstrated the highest hazard ratio. We also confirmed that both, regulations and aging effects, alter the prepayment behavior of debtors. Finally, we confirmed that there is substantial prepayment hazard gap among debtors with similar loan conditions. This research will help improve the prepayment forecasting model implemented in the field, by considering such characteristics, and promote further research on prepayment behavior by considering various dimensions of debtor and loan characteristics.