Till Mortgage Do Us Part: Refinancing Costs and Household’s Bank Switching

50 Pages Posted: 5 Feb 2016 Last revised: 14 Dec 2017

See all articles by Marianna Brunetti

Marianna Brunetti

Dept. Economics and Finance, University of Rome Tor Vergata; CEFIN

Rocco Ciciretti

Tor Vergata University of Rome - Department of Economics and Finance

Ljubica Djordjevic

Goethe University Frankfurt

Date Written: October 2017

Abstract

We show that the mortgage refinancing costs, which serve as a “lock-in” for mortgage holders, play an important role in household’s decision to switch a bank. To this end, we use a unique household panel dataset that enables us to infer individual bank switching, in conjunction with a legal reform that exogenously slashed down the mortgage refinancing costs. We find that the households responded to this change by increasingly changing their main bank to refinance or prepay an existing mortgage loan (switching with a mortgage), as well as to take out a mortgage (switching for a mortgage). Dissecting these results, we show that the effects of the reform were not uniform across households. The more educated households, those residing in ex-ante less competitive markets, or in the markets where relationship banking is relatively weaker were at the forefront of the wave of bank switching.

Keywords: bank switching, mortgage refinancing costs, switching costs, natural experiment

JEL Classification: G21; D14

Suggested Citation

Brunetti, Marianna and Ciciretti, Rocco and Djordjevic, Ljubica, Till Mortgage Do Us Part: Refinancing Costs and Household’s Bank Switching (October 2017). CEIS Working Paper No. 364. Available at SSRN: https://ssrn.com/abstract=2726776 or http://dx.doi.org/10.2139/ssrn.2726776

Marianna Brunetti (Contact Author)

Dept. Economics and Finance, University of Rome Tor Vergata ( email )

Via Columbia, 2
Rome, Lazio 00133
Italy

HOME PAGE: http://economia.uniroma2.it/en/def/faculty/178/brunetti-marianna

CEFIN ( email )

via Berengario 51
Modena, modena I-41100
Italy

Rocco Ciciretti

Tor Vergata University of Rome - Department of Economics and Finance ( email )

Via Columbia, 2
Roma, 00133
Italy
+39 06 72595925 (Phone)

HOME PAGE: http://www.roccociciretti.com/

Ljubica Djordjevic

Goethe University Frankfurt ( email )

Theodor-W-Adorno platz 3
Frankfurt am Main, 60323
Germany

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