The mortgage refinance decision
an equation-based model
DOI:
https://doi.org/10.61190/fsr.v12i4.4774Keywords:
Prepayment, Loans, Mortgage, RefinancingAbstract
Given recent historically low interest rates, homeowners have been heavily involved in the process of refinancing their home mortgages. This paper examines current refinance analysis methods, and finds most advocate various forms of break-even analysis. In essence, these methods primarily differ with respect the variables considered, complexity of analysis, and solution accuracy. This paper develops an equation-based model that considers the generally relevant variables, while decreasing the complexity of analysis to the solution of an equation. In addition, the model permits an effective comparison of alternative loan terms, determines the expected refinance savings, and solves for the opportunity gain or loss of a refinance deferral.
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