Leaving Money on the Kitchen Table: Exploring Sluggish Mortgage Refinancing Using Administrative Data, Surveys, and Field Experiments
Leaving Money on the Kitchen Table: Exploring Sluggish Mortgage Refinancing Using Administrative Data, Surveys, and Field Experiments
7 July, 2020 •Similar Articles
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Refinancing a mortgage is an important but complicated decision. Failing to do so optimally can cost borrowers thousands of dollars. This paper investigates a setting where the decision is easier because borrowers receive a pre-approved offer with no upfront monetary costs that offers a significant reduction in monthly payments ($204 on average). Based on administrative data from about 800,000 the administrative data, links this failure to suspicion about the motives of financial institutions. The deals of the bank seem to be too good to be true. In addition, we find that time preferences are somewhat related to failures to refinance. Evidence from three field experiments with about 100,000 borrowers each show that it is very difficult to increase applications rate in such an environment. Financial incentives, i.e. gift cards, to apply can even backfire – consistent with the interpretation that monetary incentives can increase suspicion even further.