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Failure to Refinance

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Listed:
  • 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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    More about this item

    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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