Working Paper: NBER ID: w20401
Authors: 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.
Keywords: refinancing; mortgages; behavioral economics
JEL Codes: D03; R30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| failure to refinance (G32) | economic benefits (D61) |
| socioeconomic factors (P23) | failure to refinance (G32) |
| lower education levels (I24) | failure to refinance (G32) |
| failure to refinance (G32) | total estimated forgone savings (J17) |