Expected Mobility

Abstract

This research combines information on mortgage terminations with housing market data to distinguish borrowers who prepay their mortgages because they are moving from those who prepay to refinance without moving. It uses a closed-form valuation formula to compute the callable value of the mortgage and property level data to estimate current loan-to-value ratios. Results show that expected mobility affects borrower behavior in an asymmetric fashion. Borrowers with high expected mobility are less likely to refinance, but borrowers with strong refinancing incentives are not more likely to move. Differentiating movers from refinancers provides a clearer picture of the responsiveness of prepayments to interest rate movements.