Monday, October 15, 2007

When to Refinance

Most economic research is not terribly useful for making better decisions regarding personal finance. Here is an exception.

In a new paper, Sumit Agarwaland, John Driscoll, and David Laibson provide a relatively simple closed-form solution to the problem of when to refinance one's mortgage to save on interest payments, taking into account uncertainty and the option value of waiting. They also provide an online calculator to make it easy for people to use the new method.