Mortgage Refinancing

Paper Summary:

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 analyzed. The pitfalls of mortgage refinancing are also highlighted. Case study analysis of mortgage refinancing is attempted to explain the market dynamics from a practical perspective. The paper also traces the recent trends in mortgage refinancing in leading countries and the various forces that drive the refinancing market

From the Paper:

"Mortgage is the loan given by financial institutions or banks for purchase of property in return for interest on the amount loaned. The term "mort" means dead in French, implying that the borrower will have to kill off the loan, albeit slowly. The loan repayment is spread over a definite period and payment is usually made every month. The lender has the first lien on the property, till such time the loan is repaid. In the US, the common term for mortgage is 30 years, followed by 15-year term. The issue of which option is better is often debated. In strict financial sense, the 15 year option is better as the interest element in the 30 year mortgage, will be substantially higher. However, the 30 year option will mean lower monthly payments, which could mean higher affordability to the borrower."

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