This paper develops a model for determining the level of, and changes over time in, the short-term interest rate exposure contained in adjustable rate mortgage loans (ARMs). Results of the study indicate that movements in the underlying adjustment index can create both upward-movement or...

This paper develops a model which explains how mortgage-rate movements, transactions costs, changes in borrower income and house value, personal financial opportunities and the prepayment option embedded in fixed-rate mortgages affect a financially flexible borrower's decision to refinance an...