 The role of prepayment penalties in mortgage loansAndrea Beltratti, Matteo Benetton and Alessandro Gavazza Journal of Banking & Finance, 2017, vol. 82, issue C, 165-179 Abstract: We study the effect of mortgage prepayment penalties on borrowers’ prepayments and delinquencies by exploiting a 2007 reform in Italy that reduced penalties on outstanding mortgages and banned penalties on newly-issued mortgages. Using a unique dataset of mortgages issued by a large Italian lender, we provide evidence that: 1) before the reform, mortgages issued to riskier borrowers included larger penalties; 2) higher prepayment penalties decreased borrowers’ prepayments; and 3) higher prepayment penalties did not affect borrowers’ delinquencies. Moreover, we find suggestive evidence that prepayment penalties affected mortgage pricing, as well as prepayments and delinquencies through borrowers’ mortgage selection at origination, most notably for riskier borrowers. Keywords: Mortgages; Prepayment penalties; Refinancing; Default (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:82:y:2017:i:c:p:165-179 DOI: 10.1016/j.jbankfin.2017.06.004 Access Statistics for this article Journal of Banking & Finance is currently edited by Ike Mathur More articles in Journal of Banking & Finance from Elsevier |
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