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Optimal Mortgage Refinancing with Stochastic Interest Rates

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Author Info
Andrew H. Chen
David C. Ling
Abstract

The purpose of this paper is to develop a dynamic model of mortgage refinancing in a contingent claim framework that simultaneously solves for the borrower's optimal mortgage refinancing strategy, the value of the refinancing call option, the value of the mortgage liability to the borrower, and the market (lender) value of the fixed-rate contract. We also calculate the minimum differential between the contract rate on the existing mortgage and the current interest rate that is required to trigger an optimal mortgage refinancing. Copyright American Real Estate and Urban Economics Association.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/1540-6229.00492
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Publisher Info
Article provided by American Real Estate and Urban Economics Association in its journal Real Estate Economics.

Volume (Year): 17 (1989)
Issue (Month): 3 ()
Pages: 278-299
Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Handle: RePEc:bla:reesec:v:17:y:1989:i:3:p:278-299

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  1. Winston T.H. Koh & Edward H.K. Ng, 2005. "Investing in Real Estate: Mortgage Financing Practices and Optimal Holding Period," Working Papers 03-2005, Singapore Management University, School of Economics. [Downloadable!]
    Other versions:
  2. Jill Wetmore & Chiaku Ndu, 2006. "Mortgage Refinancing Activity: An Explanation [1990–2001]," The Journal of Real Estate Finance and Economics, Springer, vol. 33(1), pages 75-86, August. [Downloadable!] (restricted)
  3. Sumit Agarwal & John C. Driscoll & David Laibson, 2007. "Optimal Mortgage Refinancing: A Closed Form Solution," NBER Working Papers 13487, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  4. Sam R. Hakim, 1997. "Autonomous and Financial Mortgage Prepayment," Journal of Real Estate Research, American Real Estate Society, vol. 13(1), pages 1-16. [Downloadable!]
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This page was last updated on 2009-11-22.

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