Abstract
This article aims to present a bivariate binomial mortgage-pricing model to evaluate prepayment probabilities and timing in both fixed-rate mortgages (FRM) and adjustable-rate mortgages (ARM). In the model conducted, we divided the default options into two components: the right to stop making payment (delinquency) and the right to give up the property via foreclosure. An in-depth comparison is made between these two types of mortgages followed by the sensitivity analysis utilized, in which we examine the impact of changing initial contract and economic parameters on the delinquency, prepayment and reinstatement.