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Failure to Refinance

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  • Benjamin J. Keys
  • Devin G. Pope
  • Jaren C. Pope

Abstract

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.

Suggested Citation

  • Benjamin J. Keys & Devin G. Pope & Jaren C. Pope, 2014. "Failure to Refinance," NBER Working Papers 20401, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:20401
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    1. repec:eee:jbfina:v:82:y:2017:i:c:p:165-179 is not listed on IDEAS
    2. Agarwal, Sumit & Ben-David, Itzhak & Yao, Vincent, 2017. "Systematic mistakes in the mortgage market and lack of financial sophistication," Journal of Financial Economics, Elsevier, vol. 123(1), pages 42-58.
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    5. Sumit Agarwal & Gene Amromin & Souphala Chomsisengphet & Tim Landvoigt & Tomasz Piskorski & Amit Seru & Vincent Yao, 2015. "Mortgage Refinancing, Consumer Spending, and Competition: Evidence from the Home Affordable Refinancing Program," NBER Working Papers 21512, National Bureau of Economic Research, Inc.
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    9. Passmore, Wayne & Hafften, Alexander H. von, 2017. "Improving the 30-Year Fixed-Rate Mortgage," Finance and Economics Discussion Series 2017-090, Board of Governors of the Federal Reserve System (U.S.).
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    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • R30 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - General

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