The last decade has brought about substantial mortgage innovation and increased refinancing. The objective of the paper is to understand the determinants and implications of mortgage choice in the context of general equilibrium model with incomplete markets. The equilibrium characterization...

Mortgages are prime examples of long-term nominal loans. As a result, under incomplete asset markets, monetary policy can affect household decisions through the cost of new mortgage borrowing and the value of payments on outstanding debt. These channels are distinct from the transmission through...