Revisiting the optimal repayment path for mortgages
Abstract
In this short paper I revisit a problem we studied with Júlia Király: in case of inflation, how could the repayment path of a mortgage be improved for the borrower? The answer is clear: it is the real, not the nominal value of the repayment that should be constant. Assuming constant inflation, income growth and interest rate, we analyze the problem in the simplest possible model. It appears that indexation is promising, especially for faster inflation, growth and rensonable foresight.
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