The call option held by the residential mortgage holder is in the money when market interest rates are less than the interest rate on an existing mortgage.

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A call option gives the holder the right, but not the obligation, to buy a financial instrument at a specific price (strike price) on or before a specific date. In the case of a residential mortgage, the call option is held by the borrower and allows them to refinance their mortgage if market interest rates are lower than their existing interest rate. Therefore, if market interest rates are less than the interest rate on an existing mortgage, the call option is "in the money," meaning it has value and can be exercised to refinance the mortgage at a lower rate.

The Call Option Held by the Residential Mortgage Holder Is