Failure to Refinance

By Benjamin J. Keys, Devin G. Pope, Jaren C. Pope. 2016

234 citations recorded by the source corpus.

Households that fail to refinance their mortgage when interest rates decline can lose out on substantial savings. Based on a large random sample of outstanding U.S. mortgages in December of 2010, we estimate that approximately 20% of households for whom refinancing would be optimal and who appeared unconstrained to do so, had not taken advantage of the lower rates. We estimate the present-discounted cost to the median household who fails to refinance to be approximately $11,500, making this a particularly large consumer financial mistake. To shed light on possible mechanisms and corroborate our main findings, we also provide results from a mail campaign targeted at a sample of homeowners that could benefit from refinancing.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/4b7d754ea004fd5f10467de45f0990ed713a2406

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Citations in the corpus

• The Mortgage Credit Channel of Macroeconomic Transmission (2016, unknown): “31See e.g., Andersen et al. (2014), Keys et al. (2014).”
• Mortgage Design in an Equilibrium Model of the Housing Market (2018, unknown): “Beyond the direct costs of refinancing, Johnson, Meier, and Toubia (2019), Keys, Pope, and Pope (2016), and Andersen et al. (2020) document apparent behavioral inertia in mortgage refinancing.”
• Monetary Policy Pass-Through: Household Consumption and Voluntary Deleveraging (2014, background): “18 The key feature exploited in our study is that these mortgages entail a fixed interest rate for the first (18)By 2006 they reached over 12% of all new mortgages and close to 40% in some well-performing markets (see Krainer and Laderman (2014), Piskorski and Tchistyi (2010) and Garmaise (2013)).”
• Mortgage Refinancing, Consumer Spending, and Competition: Evidence from the Home Affordable Refinancing Program (2015, unknown): “…additional benefits of ARMs that might be useful to discuss in our context.32 Of course, 31 Because these indebted households face higher default risk and have larger propensity to spend from additional liquidity (see Keys et al 2014), they are the key target of stabilization polices such as HARP.”