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Parent Category: Article

Category: Economics
Optimal Mortgage Refinancing: A ClosedForm Solution
Material Type  Article  Language  English  Title  Optimal Mortgage Refinancing: A ClosedForm Solution  Author(S)  SUMIT AGARWAL (Author)  Abstract  We derive the first closedform optimal refinancing rule: refinance when the current mortgage interest rate falls below the original rate by at least display math In this formula W(.) is (the principal branch of) the Lambert Wfunction, display math display math where ? is the real discount rate, ? is the expected real rate of exogenous mortgage repayment, s is the standard deviation of the mortgage rate, inline image is the ratio of the taxadjusted refinancing cost and the remaining mortgage value, and t is the marginal tax rate. This expression is derived by solving a tractable class of refinancing problems. Our quantitative results closely match those reported by researchers using numerical methods. ...  Pagination  p 591622  Subject  Economics  Descriptors  Economics Mortgages  Journal Title  Journal of Money, Credit, and Banking    Permanent Links  click here   
