Fixed Rate Mortgages Early Repayment Analysis

As far as Fixed Rate Mortgage loan (FRM) is concerned, as a financial instrument with long history, its structure is not complicate. Once the loan contract is signed, the interest payment is locked. So it is more advantageous to mortgager. In banking business, mortgage prepayment is usually regarded as a convention. In the situation of interest rate decreasing mortgage prepayment will cause damage to commercial bank by changing expected loan cash inflow. So the mortgage prepayment makes financial institution expose to the specific optional risk.In Chinese banking mortgage loan business, by adjusting mortgage rate periodically made Chinese commercial bank keep earning stable profit, but impaired bank's willing and ability to manage interest rate risk. Since the central bank of china approved the commercial bank to promote FRM, Chinese commercial bank will encounter the task of how to manage the prepayment risk which is also the central topic of this thesis.For the above reasons, this thesis arms at analyzing the character of FRM prepayment risk from the perspectives of option by applying the theories of financial engineering and fixed-income security. Further more, some suggestion to Chinese commercial bank on how to manage the FRM prepayment risk is also presented in this thesis.There are five chapters in this thesis.In the introduction of this thesis, some research results on the mortgage prepayment are reviewed.Chapter one focused on the analysis of the prepayment influencing factors. In this chapter, five influencing factor which including mortgage interest rate, mortgage contract feature, refinancing condition, overall economic situation and speculation, were discussed. By considering the prepayment related Chinese financial law and regulation and international convention, the prepayment was defined as not only a kind of voluntary...