Failure to Refinance

31 Pages Posted: 25 Aug 2014 Last revised: 10 Nov 2015

See all articles by Benjamin J. Keys

Benjamin J. Keys

The Wharton School - University of Pennsylvania, Real Estate Department

Devin G. Pope

University of Chicago - Booth School of Business

Jaren Pope

Brigham Young University

Multiple version iconThere are 2 versions of this paper

Date Written: August 2014

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

Keys, Benjamin J. and Pope, Devin G. and Pope, Jaren, Failure to Refinance (August 2014). NBER Working Paper No. w20401. Available at SSRN: https://ssrn.com/abstract=2486391

Benjamin J. Keys (Contact Author)

The Wharton School - University of Pennsylvania, Real Estate Department ( email )

Philadelphia, PA 19104-6330
United States

Devin G. Pope

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Jaren Pope

Brigham Young University ( email )

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