Mortgage Refinancing and Consumption Smoothing

Viola Angelini ()

Discussion Papers from Department of Economics, University of York

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.

Keywords: mortgages; refinancing; consumption smoothing (search for similar items in EconPapers)
JEL-codes: D11 D91 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ure
Date: 2006-12
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Persistent link: http://EconPapers.repec.org/RePEc:yor:yorken:06/26

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