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Mortgage Refinancing and Consumption Smoothing

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  • Viola Angelini

Abstract

This paper analyses the optimal refinancing decision of an agent whose only asset in the portfolio is the house where she lives in the context of a life-cycle model. The mortgage is modelled as an adjustable rate contract covering the remaining life of te house owner. Thus, refinancing concerns only the size of the mortgage, which can be adjusted in any period subject to a constraint on the amount that can be borrowed: the value of the new mortgage cannot exceed the latest realised price. The paper solves the model analytically and then numerically calibrates the refinancing decision.

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Bibliographic Info

Paper provided by Department of Economics, University of York in its series Discussion Papers with number 06/26.

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Date of creation: Dec 2006
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Handle: RePEc:yor:yorken:06/26

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Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
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Keywords: mortgages; refinancing; consumption smoothing;

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References

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  1. Angus Deaton, 1989. "Saving and Liquidity Constraints," NBER Working Papers 3196, National Bureau of Economic Research, Inc.
  2. Hurst, Erik & Stafford, Frank, 2004. "Home Is Where the Equity Is: Mortgage Refinancing and Household Consumption," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 36(6), pages 985-1014, December.
  3. Viola Angelini & Peter Simmons, . "Housing Debt, Employment Risk and Consumption," Discussion Papers 05/07, Department of Economics, University of York.
  4. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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Cited by:
  1. Ebner, André, 2010. "A micro view on home equity withdrawal and its determinants. Evidence from Dutch households," Discussion Papers in Economics 11309, University of Munich, Department of Economics.

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