Time-varying repayment contracts for financial resilience in mortgage lending

Mai, C; Scheule, H

Time-varying repayment contracts for financial resilience in mortgage lending

Mai, C Scheule, H

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Publisher:: Elsevier
Publication Type:: Journal Article
Citation:: Journal of Banking & Finance, 2026, 182, pp. 1-26
Issue Date:: 2026

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Field	Value	Language
dc.contributor.author	Mai, C
dc.contributor.author	Scheule, H https://orcid.org/0000-0001-7283-5654
dc.date.accessioned	2025-11-03T02:56:08Z
dc.date.available	2025-11-03T02:56:08Z
dc.date.issued	2026
dc.identifier.citation	Journal of Banking & Finance, 2026, 182, pp. 1-26
dc.identifier.issn	0378-4266
dc.identifier.issn	1872-6372
dc.identifier.uri	http://hdl.handle.net/10453/190598
dc.description.abstract	This paper develops time-varying repayment mortgage contract designs based on borrower income expectations and risk profiles over loan age. These contract designs differ between loans and are based on growing annuities. We benchmark these contracts to the traditional 30-year fixed-rate mortgage contracts. The proposed contract innovations reduce illiquidity but increase leverage due to payment delays. The combined effects reduce the probability of default, systematic risk, and regulatory capital. Due to the risk reduction, lenders can increase the gross return on regulatory capital by 10 percent, or alternatively, borrowers may benefit from credit spreads that are 17 basis points lower. Overall, our contracts enhance the resilience of mortgage markets. JEL: G01; G20; G21; C51, C55
dc.language	en
dc.publisher	Elsevier
dc.relation.ispartof	Journal of Banking & Finance
dc.relation.isbasedon	10.1016/j.jbankfin.2025.107583
dc.rights	info:eu-repo/semantics/openAccess
dc.subject	0102 Applied Mathematics, 1401 Economic Theory, 1502 Banking, Finance and Investment
dc.subject.classification	Finance
dc.subject.classification	3502 Banking, finance and investment
dc.subject.classification	4901 Applied mathematics
dc.title	Time-varying repayment contracts for financial resilience in mortgage lending
dc.type	Journal Article
utslib.citation.volume	182
utslib.for	0102 Applied Mathematics
utslib.for	1401 Economic Theory
utslib.for	1502 Banking, Finance and Investment
pubs.organisational-group	University of Technology Sydney
pubs.organisational-group	University of Technology Sydney/Business School
pubs.organisational-group	University of Technology Sydney/Business School/Finance Discipline
utslib.copyright.status	open_access	*
pubs.consider-herdc	true
dc.rights.license	0378-4266/© 2025 The Authors. Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).
dc.date.updated	2025-11-03T02:56:06Z
pubs.publication-status	Published
pubs.volume	182

Abstract:

This paper develops time-varying repayment mortgage contract designs based on borrower income expectations and risk profiles over loan age. These contract designs differ between loans and are based on growing annuities. We benchmark these contracts to the traditional 30-year fixed-rate mortgage contracts. The proposed contract innovations reduce illiquidity but increase leverage due to payment delays. The combined effects reduce the probability of default, systematic risk, and regulatory capital. Due to the risk reduction, lenders can increase the gross return on regulatory capital by 10 percent, or alternatively, borrowers may benefit from credit spreads that are 17 basis points lower. Overall, our contracts enhance the resilience of mortgage markets. JEL: G01; G20; G21; C51, C55

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http://hdl.handle.net/10453/190598