A homeowner can refinance the mortgage loan on the house at a lower rate when the interest rates go down.The right to refinance at a lower rate is a(n):

Question

Quizplus · Accepted Answer

A call option gives the holder the right, but not the obligation, to buy an asset at a predetermined price (strike price) within a specific period. In this scenario, the homeowner has the right to refinance their mortgage at a lower rate, but they are not obligated to do so. Therefore, it is a call option.

A Homeowner Can Refinance the Mortgage Loan on the House