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Failure to refinance

Listed author(s):
  • Keys, Benjamin J.
  • Pope, Devin G.
  • Pope, Jaren C.

Households that fail to refinance their mortgage when interest rates decline lose out on substantial savings. Using a random sample of outstanding US mortgages in December 2010, we estimate that approximately 20% of unconstrained households for whom refinancing was optimal had not done so. The median household would save $160/month over the remaining life of the loan, for a total present-discounted value of forgone savings of $11,500, a particularly large consumer financial mistake. To shed light on possible mechanisms, we also provide results from a mail campaign targeted at a sample of homeowners who could benefit from refinancing.

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File URL: http://www.sciencedirect.com/science/article/pii/S0304405X16301507
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Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 122 (2016)
Issue (Month): 3 ()
Pages: 482-499

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Handle: RePEc:eee:jfinec:v:122:y:2016:i:3:p:482-499
DOI: 10.1016/j.jfineco.2016.01.031
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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