This item is only available for download by members of the University of Illinois community. Students, faculty, and staff at the U of I may log in with your NetID and password to view the item. If you are trying to access an Illinois-restricted dissertation or thesis, you can request a copy through your library's Inter-Library Loan office or purchase a copy directly from ProQuest.
Permalink
https://hdl.handle.net/2142/22488
Description
Title
Household tenure and the mortgage prepayment
Author(s)
Yang, Tai-le
Issue Date
1991
Doctoral Committee Chair(s)
Colwell, Peter F.
Department of Study
Finance
Discipline
Finance
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Finance
Language
eng
Abstract
This thesis analyzes the relationship between the household's tenure and the mortgage prepayment. The household tenure is the time a home buyer resides in the mortgaged home. During the last decade, most of the home mortgages originated carried due-on-sale clauses, which force borrowers to pay off their mortgages as soon as the underlying real estate parcels are sold. Under such a restriction, the effective life of a mortgage is the minimum of its term and the household's tenure in the mortgaged home. Since most households do not keep their house for as long as the maturity of the mortgage (e.g. 30 years), the effective life of the mortgage is generally determined by the household's tenure.
The household's tenure affects the mortgage prepayment mainly through the expiration date of the prepayment option. The prepayment to refinance a fixed rate mortgage is a very special option. Its expiration date is the end of the effective life of the mortgage. Not only is this expiration date random, but also the information set about this variable is asymmetric between the lender and the borrower. The major contribution of this thesis to the literature is to generalize the previous prepayment option pricing models by relaxing the naive assumptions about the expiration date.
The assumptions of this household tenure in the previous literature are relaxed in two respects, (1) the assumption that this tenure is non-stochastic is relaxed in chapter two, and (2) the assumption that the information is symmetric between the lender and the borrower is relaxed in chapter three and four. Mortgage pricing models for these two generalized situations are developed. The models are applied in determining (1) the value to the borrower of the mortgage, (2) the interest rate differential needed to justify prepayment, (3) the borrower's choice among different contract rate-discount points combinations, and (4) the value to the lender of the mortgage.
Use this login method if you
don't
have an
@illinois.edu
email address.
(Oops, I do have one)
IDEALS migrated to a new platform on June 23, 2022. If you created
your account prior to this date, you will have to reset your password
using the forgot-password link below.
