A Study on the Termination Behaviors of Residential Mortgages in Taiwan

Traditionally, mortgage default or prepayment behaviors are mostly studied individually through non-competing risks models in Taiwan, which have been criticized as misleading. This study is the first to construct a unified model to explore the mortgage prepayment and default behavior in Taiwan. The competing risk model (CRM) is employed to investigate factors influencing mortgage termination. Empirical results show that such elements of mortgage contracts as loan to value (LTV) ratio, payment to income (PTI) ratio, and regional variation are crucial elements to mortgage termination. Some macro factors, such as unemployment, divorce rates, and distinctive decline of macro economy are significant to mortgage default. Furthermore, two option variables, i.e., changes in interest rates and housing prices, are critical to mortgage prepayment and default, respectively.