Here’s help for that refi decision
Wouldn’t it be nice if academic economists and all of their complicated formulas could help you with personal financial decisions? In a new National Bureau of Economic Research working paper, Sumit Agarwal, John C. Driscoll and David Laibson attempt to do just that. And they’ve tackled one of the most complex questions a homeowner might face: When does it make sense to refinance your mortgage?
The language is far too dense for most readers. But then, they had to take a lot of variables into account:
The optimal refinancing solution depends on the discount factor, closing costs, mortgage size, the marginal tax rate, the standard deviation of the innovation in the mortgage interest rate, and the Poisson rate of exogenous real repayment.
Fortunately, the authors also provide an easy-to-use Web calculator.
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David Nicklaus has covered St. Louis business for more than 25 years. His column appears three days a week on the Post-Dispatch business page. 
