February 05, 2004
Mortgage Refinancing
The option to pay off a mortgage early allows homeowners to save money when interest rates decrease, but it introduces a risk for investors in mortgages.
We calculated the new payment amount when a 10% mortgage is ten years old, the mortgage rate is down to 6%, and the homeowner refinances. The balance due is the present value of the remaining payments at the original interest rate. The mortgage would have been worth $121,696 if only the owner could never refinance.
