Mortgage Choice : What ' s the Point ?

  title={Mortgage Choice : What ' s the Point ?},
  author={Nancy Wallace},
This paper shows that, in the presence of transaction costs payable by borrowers on re nancing, it is possible to construct a separating equilibrium in which borrowers with di ering mobility select xed rate mortgages (FRMs) with di erent combinations of coupon rate and points. We also show that, in the absence of such costs, no such equilibrium is possible. This provides a possible explanation for the large menus of FRMs typically encountered by potential borrowers, and suggests that the menu… CONTINUE READING
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