Featured statistic: 49 years and 141 days

News
Date 13 November 2007

The average legal original term to maturity of mortgage-backed securities issued by Dutch special purpose vehicles (SPVs) is 49 years and 141 days. This is seemingly much longer than the average term to maturity of government bonds, which currently stands at just under 12 years. The chart below provides an overview of the amounts of the bonds issued (by nominal value), broken down by legal term to maturity. It shows that most bonds have maturities between 30 and 50 years. Bonds with longer maturities, even in excess of 90 years, are no rarity either, though.

Grafiek Nominale bedragen aan 'Mortgage backed securities' naar looptijd bij uitgifte

The legal original term to maturity of mortgage-backed securities provides no more than an indication of the theoretical maximum maturity. This is basically determined by the maturity of the longest-term loan in the collection of loans transferred, which in the event of interest-only mortgages can be quite long. In reality, the term to maturity of this type of bond is much shorter, since most people move house before their mortgages mature. In addition, mortgages are often repaid and / or refinanced before maturity, without the home in question being sold. In all such cases, a proportionate part of the bond is repaid before maturity. This is why the prospectus often also specifies an expected maturity, which as a rule varies between 5 and 10 years.

SPVs are separate legal entities usually set up by banks to securitise specific financial assets (e.g. mortgages and corporate loans). In the event of securitisation, the original lender transfers his rights to a collection of loans to the SPV. The SPV issues bonds to finance this transfer. If the loans transferred are mortgage loans, the bonds are referred to as 'mortgage-backed securities'. These bonds entitle the investor to the interest payments and repayments by the home-owners concerned.