mortgage refinancing

A recent paper derives a formula to determine whether one should refinance a mortgage.

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10702Optimal Mortgage Refinancing: A Closed Form SolutionSUMIT AGARWAL Federal Reserve Bank of Chicago - Economic Research JOHN C. DRISCOLL Federal Reserve Board - Division of Monetary Affairs DAVID LAIBSON Harvard University - Department of Economics; National Bureau of Economic Research (NBER) March 17, 2008

The most useful parts of the paper for individual investors will be the numerical examples and the explanation of the factors involved, rather than the mathematical derivation.

A mortgage calculator implementing the formula is at

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and a survey of refinancing rules is at
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.

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Reply to
beliavsky
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That is all nice, but the problem is that it required knowing how long one will live in their current house. Often, that number is not known, or is impossible to know. From there, it boils down to garbage in, garbage out.

-john-

Reply to
John A. Weeks III

There are times that something pretty simple can be made complex beyond words. It's pretty easy to add up the costs of refinancing. And any mortgage calculator will show you the new payment (to keep apples to apples, one should not refinance calculating a new 30 year loan, but should do the math to pay off in the same time remaining). You then can see how much time to break even. So to John's point, which was important, my method offers a response. Even if the owner doesn't know how long they'll be in the house, they can know the months to break even, and decide from there.

There are also deals (or were, haven't looked recently) which offer no point, no closing. I'm in my house 12 years and on the 4th mortgage, having ridden rates down to a 5.24% 15 yr. fixed.

Joe wwww.blog.joetaxpayer.com

-------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup.

Reply to
joetaxpayer

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