Implied mortgage refinancing thresholds
By: Paul Bennett, Richard Peach, and Stavros Peristiani.
Contributors: Peach, Richard Wilson, 1951-; Peristiani, Stavros.; Federal Reserve Bank of New York.
Series: Staff reports ;; no. 49; Staff reports (Federal Reserve Bank of New York : Online) ;; no. 49.
Publisher: Federal Reserve Bank of New York
Published: 1998
Place of publication: [New York, N.Y.]
Language: eng
Format: Electronic resource
Subjects: Mortgage loans -- United States -- Refinancing -- Econometric models.; Housing -- United States -- Finance -- Econometric models.
Description: "The optimal prepayment model asserts that rational homeowners would refinance if they can reduce the current value of their liabilities by an amount greater than the refinancing threshold, defined as the cost of carrying the transaction plus the time value of the embedded call option.  To compute the notional value of the refinancing threshold, researchs have traditionally relied on a discrete option-pricing model.  Using a unique loan level dataset that links homeowner attributes with property and loan characteristics, this study proposes an alternative approach of estimating the implied value of the refinancing threshold.  This empirical method enables us to measure the minimum interest rate differential needed to justify refinancing conditional on the borrower's creditworthiness, remaining maturity, and other observable characteristics"--Federal Reserve Bank of New York web site.
Notes: Includes bibliographical references.
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