Failure to Refinance

Benjamin J. Keys, Devin G. Pope, Jaren C. Pope

NBER Working Paper No. 20401
Issued in August 2014
NBER Program(s):   LS

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.

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Document Object Identifier (DOI): 10.3386/w20401

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