Mortgage Refinancing

There is a spurt of mortgage refinancing activity in recent times, thanks to interest rates remaining low and more or less consistent over a significant time horizon, appreciation of house prices and the easier refinancing options available in the market. This paper attempts to trace the various issues that influence the homeowner's decision to refinance. The pros and cons of 30-year mortgage vis-a-vis 15-year mortgage are discussed from different perspectives. From a homeowner's perspective the benefits and drawbacks of fixed-rate mortgage and adjustable-rate mortgage are analysed. This analysis is made with reference to basic financial principles - the self-interested behaviour, the principle of incremental benefits, risk-return trade-off and the time value of money. Refinancing makes available fresh capital to the homeowners giving them the opportunity to use it for spending or investing for returns.

Soft interest rates and increasing property prices in recent years have resulted in sharp...
[ View Full Essay]