As coupon rates on new mortgages fall:
A)individuals are inclined to sell off their mortgages
B)there is a decreased incentive for individuals in the pool to pay off old, high-cost mortgages and refinance at lower rates
C)there is an increased incentive for individuals in the pool to pay off old, high-cost mortgages and refinance at lower rates
D)there is no effect on mortgage payments

Question

Quizplus · Accepted Answer

As coupon rates on new mortgages fall, individuals in the pool are more likely to refinance their old mortgages at lower rates, leading to an increased incentive to pay off their old, high-cost mortgages. This is because lower coupon rates mean that they can save money on interest payments by refinancing.

As Coupon Rates on New Mortgages Fall