In the USA, a substantial literature has emerged to investigate the prepayment behaviour of mortgage borrowers, using loan level data to identify the effects of borrower…
Abstract
In the USA, a substantial literature has emerged to investigate the prepayment behaviour of mortgage borrowers, using loan level data to identify the effects of borrower characteristics. This paper supplements the existing literature in three ways. First, the study looks for the first time at the prepayment behaviour of German mortgage borrowers. Second, it uses a unique Bauspar‐Loan data set consisting of over 55,000 Bauspar‐Loans paid off or prepaid between January 1998 and September 2000. Third, based on the special characteristics of the Bauspar‐Loan, it is possible to identify a portfolio optimizing behaviour as the driving force for prepayment.