Optimal Interest Rate-Discount Points Combination: Strategy for Mortgage Contract Terms
This paper is distinguished from previous papers by its focus on income-producing properties, rather than owner-occupied single-family residential properties. The real estate investor's strategy, in terms of choosing an interest rate-discount points combination, is analyzed by using a discounted cash flow approach. Under this framework, the investor with a lower marginal tax rate, lower required rate of return and longer investment horizon tends to negotiate for a mortgage contract with a higher number of discount points and lower interest rate. In addition, an intermediate rate-points combination is preferred by an investor only when the lender's required interest rate is a decreasing convex function of the number of discount points. Copyright American Real Estate and Urban Economics Association.
Year of publication: |
1995
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Authors: | Cannaday, Roger E. ; Yang, T. L. Tyler |
Published in: |
Real Estate Economics. - American Real Estate and Urban Economics Association - AREUEA. - Vol. 23.1995, 1, p. 65-83
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Publisher: |
American Real Estate and Urban Economics Association - AREUEA |
Saved in:
freely available
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