Toby Daglish and Nimesh Patel discuss the rationale behind banks charging break-fees to recoup their losses as a result of customers prepaying loans. Next they chart the historical levels of these for New Zealand. Lastly they develop a model which allows for fluctuations both in banks' wholesale...

We examine the decision to prepay a fixed rate mortgage in the UK Canada Ireland Australia and New Zealand. These countries are characterised by having substantial fees which are associated with breaking a fixed rate mortgage. We develop a model which allows for fluctuations both in banks'...