Universal Journal of Accounting and Finance Vol. 4(5), pp. 185 - 190
DOI: 10.13189/ujaf.2016.040504
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Mortgage Interest Tax Shield and Home Mortgage Refinancing Decision


Sang-Hoon Kim *, Dong-Kyoon Kim
Feliciano School of Business, Montclair State University, United States

ABSTRACT

Under current low interest rates, the decision whether or not to refinance a mortgage is a timely and practically useful topic. However, the home mortgage refinancing decision is also affected by other variables such as personal tax rate. In addition, financial institutions provide different types of mortgage loans in terms of maturity (loan period), interest rate, processing cost, points (bank fee), and so forth. Several websites are available which can be used to aid making the refinancing decision. However, these websites programs are not explicitly geared towards selecting a low cost mortgage loan. Furthermore, these websites are limited in their usefulness due to inadequate assumptions or the difficulty of acquiring information required for the program. For example, a certain website requires information such as the expected future interest rate, the expected inflation rate, the standard deviation of mortgage interest rates, and so forth. To be practically useful, the assumptions should be simple and reasonably realistic. The objective of this paper is to prepare, under realistically reasonable assumptions, an Excel program which can select a low cost mortgage loan after consideration of the tax deductibility of mortgage interest rate. This paper can be used as a case problem for both undergraduate and MBA students. From the case, students learn how Excel (or any spread sheet program) can be programed and used to analyze finance problems.

KEYWORDS
Mortgage Refinancing Decision, Tax Deductibility, Excel Program

Cite This Paper in IEEE or APA Citation Styles
(a). IEEE Format:
[1] Sang-Hoon Kim , Dong-Kyoon Kim , "Mortgage Interest Tax Shield and Home Mortgage Refinancing Decision," Universal Journal of Accounting and Finance, Vol. 4, No. 5, pp. 185 - 190, 2016. DOI: 10.13189/ujaf.2016.040504.

(b). APA Format:
Sang-Hoon Kim , Dong-Kyoon Kim (2016). Mortgage Interest Tax Shield and Home Mortgage Refinancing Decision. Universal Journal of Accounting and Finance, 4(5), 185 - 190. DOI: 10.13189/ujaf.2016.040504.