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All mortgages originated in Singapore are adjustable rate mortgages (ARMs) (Khor and Ong, 1998). In contrast, most studies on mortgage risks originate from the USA, where Fixed Rate Mortgages (FRMs) are prevalent (Ong, 2000b). The exogenous and endogenous factors affecting both forms of mortgages may be different. For instance, the prepayment risk for Singapore mortgages is very low (Ong, Thang and Maxam, 2002) while the prepayment risk for ARMs in the USA may be higher resulting from potential switches to FRMs to take advantage of interest rate movements (Ambrose and LaCour-Little, 2001).

Ong (2000a) was one of the earlier studies to examine prepayment risk in private housing. The best approach is to examine individual mortgage terminations. In the absence of such data, which is not publicly available, this research utilizes repeat sales in transaction data to proxy for holding period and prepayment. Based on transaction data from the Singapore Institute of Surveyors and Valuers (SISV) REALINK database, the research traces the history of transactions for all units in selected condominium developments. We identify the date of purchase from the developers and the date of subsequent sale, if any. The subsequentsale is regarded as the prepaymenteventand the duration between purchase and subsequent sale is used as a proxy for holding period.

First, the variables that influence the likelihood of sale are identified by way of a probitanalysis. The prepaymentor subsequentsale rate is then analysed by appealing to non-parametric and parametric hazard rate models. Microeconomic and macroeconomic variables that have been shown to be important factors in determining the subsequent sale are also tested in the parametric hazard model. Specifically, this study uses the Weibull distribution to model the holding period or duration between purchase and subsequentsale.

Ong (2000a) shows that the prepayment rate for new condominiums is increasing in the holding period and exhibits spikes in the fourth and sixth years. The likelihood of observing a subsequentsale and the prepayment rate increases in floor level, sentiment and other investment return, but decreases in floor area and mortgage rate hikes. Appreciation in the property price also tends to increase the probability and rate of prepayment. In contrast, owners of larger property units and HDB upgraders are less likely to resell their properties. The evidence also suggests that the likelihood of prepayment is lowered after the antispeculation measures were introduced in May 1996.

Other interesting research that examines prepayment rates for private housing is that of Ong, Thang and Maxam (2002). Ong, Thang and Maxim (2002) use individual mortgage data from a financial institution. The study shows that the macroeconomic variables such as GDP, stock market price movements, property market returns and mortgage rates are major influential factors. In addition, property characteristics, such as floor level and area of flat, determine the mortgagors’ likelihood to prepay. These results are similar in many ways to the earlier research by Ong (2000a), and the similarity suggests that the mobility patterns of the mortgagors significantly affect prepaymentrisk.

Upward mobility is an important phenomenon in Singapore demarcated by two distinct housing segments, as earlier discussed. Tu, Kwee and Yuen (2004) and Ong and Sing (1999) observe the households’ upward mobility from public housing to private housing. Their findings further imply that such upward mobility will affect the prepayment risk of public housing mortgages. However, there is little micro-level study on the prepayment of public housing mortgages. The one exception is Lee and Ong (2005).