Paying Too Much? Borrower Sophistication and Overpayment in the US Mortgage Market
91 Pages Posted: 22 Jul 2019 Last revised: 4 Mar 2024
There are 3 versions of this paper
Paying Too Much? Borrower Sophistication and Overpayment in the US Mortgage Market
Paying Too Much? Borrower Sophistication and Overpayment in the US Mortgage Market
Paying Too Much? Borrower Sophistication and Overpayment in the Us Mortgage Market
Date Written: March 1, 2024
Abstract
Comparing mortgage rates that borrowers obtain to rates that lenders could offer for the same loan, we find that many homeowners significantly overpay for their mortgage, with overpayment varying across borrower types and with market interest rates. Survey data reveal that borrowers' mortgage knowledge and shopping behavior strongly correlate with the rates they secure. We also document substantial variation in how expensive and profitable lenders are, without any evidence that expensive loans are associated with a better borrower experience. Despite many lenders operating in the US mortgage market, limited borrower sophistication may provide lenders with market power.
Keywords: mortgages, household finance, interest rates, financial literacy, price dispersion
JEL Classification: G21, D14, D18, D83, E43
Suggested Citation: Suggested Citation