What macroeconomic factors could affect interest rates and therefore affect the mortgage refinancing decision? Which type of mortgage risk is the most difficult to overcome? Explain

(Nominal interest rate) are largely determined by two factors: business cycles, and inflation expectation. All else the same, during recession, real interest rate is low as demand for loanable funds is low. In addition, price levels are low and so is inflation. Thus nominal interest rate is low during recessions. During economic expansion, both real interest rate and expected inflation are high, so is nominal interest rate.

Default risk is the most difficult to overcome, because it is difficult to hedge against. Such risk is both systematic and idiosyncratic. For example, during recessions people are more likely to lose their jobs on average, but it really differs from person to person.