Title: A Financial Analysis of Consumer Mortgage Decisions

Date: 6/25/2009

Author(s): Andrew J. Kalotay and Qi Fu

Executive Summary:

This study provides financial planners, housing counselors and potential homeowners with a deeper look into some of the complex mortgage decisions consumers face, as well as methods for analyzing mortgage choices. Using standard, well-understood approaches and tools that are used by corporate and municipal treasurers, the authors illustrate how these can be adapted for residential mortgages.

The main topics covered are:

• The importance of a homeowner's planned ownership horizon in determining the appropriate mortgage product and rate/point tradeoff
• How to determine the right time to refinance by balancing the gain from lowering payments today against the loss of option value from refinancing too early
• The costs and benefits of paying down a mortgage versus other potential investment choices