Mortgage refinancing

the interaction of break even period, taxes, NPV, and IRR

Authors

  • Rich Fortin New Mexico State University
  • Stuart Michelson Stetson University
  • Stanley D. Smith Department of Finance, University of Central Florida
  • William Weaver Department of Finance, University of Central Florida

DOI:

https://doi.org/10.61190/fsr.v16i3.4890

Keywords:

Excel, Simulation, NPV, IRR, Breakeven, Taxes, Refinancing, Mortgage

Abstract

This paper develops a refinance model that provides pertinent information for investors about refinancing their mortgage. We discuss the input variables and how to compute the breakeven number of months when deciding to refinance a mortgage. We incorporate the interest rate tax effects that are normally ignored by investors when making their refinancing decision. We also compute the net present value and internal rate of return to allow one to analyze refinancing as an investment decision. Additionally we have developed an Excel model, complete with automated macros, to perform this analysis.

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Published

2007-09-30

Issue

Vol. 16 No. 3 (2007): FSR Fall 2007

Section

New Original Submission

License

Copyright (c) 2007 Academy of Financial Services

Creative Commons License

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Author(s) retain copyright and grant the Journal right of first publication with the work simultaneously licensed under a Creative Commons Attribution-NonCommercial 4.0 International License that allows to share the work with an acknowledgment of the work's authorship and initial publication in this Journal.

This license allows the author to remix, tweak, and build upon the original work non-commercially. The new work(s) must be non-commercial and acknowledge the original work.

How to Cite

Mortgage refinancing: the interaction of break even period, taxes, NPV, and IRR. (2007). Financial Services Review, 16(3), 197-209. https://doi.org/10.61190/fsr.v16i3.4890