In this chapter, a semi-analytical approach to the valuation of callable mortgage bonds is developed. The pricing problem is cast into the usual continuous-time framework for interest rate derivatives, and necessary approximations are made. The prepayment function, in contrast to an empirical model for prepayments, is given by a call spread on the gain from refinancing. The computational framework for affine models developed in Duffie et al. (1996) is then used to price the expressions that arise. An algorithm is presented and used to calculate the present values and first- and second-order sensitivities. The developed model is, by nature, completely different from the models developed in Chaps. 6 and 7 . The present values are more or less comparable, but the sensitivity numbers seem to have different scales. However, the model can be seen as a link between the market for callable mortgage bonds and the market for interest rate derivatives.