A marginal cash flow analysis of mortgagors’ choices
DOI:
https://doi.org/10.61190/fsr.v25i1.3267Keywords:
Mortgage Maturity, Jumbo, ConformingAbstract
A great deal of academic research has focused on determinants of the spread between interest rates on conforming versus Jumbo and 15-year versus 30-year mortgages, but much less has been done to help the borrower determine what choice is best for him. We examine these issues from the borrower’s frame of reference and find that comparisons of mortgage terms can be facilitated by analyzing the marginal cash flows from one mortgage contract to another. For many borrowers the “conventional wisdom” leads to suboptimal choices; making the better choice can easily produce low-risk double-digit returns.
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