Refinancing burnout

Refinancing burnout is a concept related to mortgage industry. The path that mortgage rates follow on their way to the current level will affect prepayments today. The tendency for prepayments to drop when rates fall, rise, and fall again is called refinancing burnout. In other words, when interest rates keep on dropping, those who can benefit by taking advantages of refinancing will have done so already when rates declined in previous periods and this this prepayment behavior is called refinancing burnout. Burnout is related to the path of mortgage rates which means prepayment of refinancing behavior is path-dependent and therefore the binomial tree model should not be used here.

Ref

1."Collateralized Mortgage Obligations: Structures and Analysis" by Frank Fabozzi

2."Pricing Mortgate backed securities using prepayment functions and pathwise Monte Carlo Simumlation" by Osman Acheampong

3."Bond Portfolio Management" by Frank Fabozzi