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Alternative Mortgage Instruments / The Adjustable-Rate Mortgage

http://www.madeinatlantis.com Posted by madeinatlantis 423 days ago

For a mortgage of a given maturity, the decline in duration is a function of the ability of the contract rate to adjust to new market rates. At the extreme, an adjustable mortgage whose contract rate change matches every change in market rates would always have a duration of zero. This is because the mortgage would always be worth the principal due and there would be no change in the value of the mortgage due to changes in market interest rates.

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