Interrupting inertia: evidence from a mortgage refinancing field trial

Shane Byrne, Kenneth Devine and Yvonne McCarthy
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Kenneth Devine: Central Bank of Ireland
Yvonne McCarthy: Central Bank of Ireland

No 9/EL/22, Economic Letters from Central Bank of Ireland

Abstract: A widespread tendency for mortgage holders to forego opportunities to reduce their repayment burden through refinancing has been well documented. This puzzle has persisted in spite of considerable regulatory and public attention to the topic. In this Letter, we conduct a randomised controlled trial on a sample of circa 12,000 mortgage holders to test how targeted enhancements to an existing disclosure can prompt greater take-up of advantageous refinancing opportunities. The results show the best performing enhancement delivered a 76 per cent increase in the number of refinances completed, when compared against the pre-existing standard disclosure. Refinancers benefit materially, saving on average €1,209 just within the first 12 months after action. We observe that reminders substantially drive the increased uptake, and that the incorporation of personalised euro savings estimates as part of the menu of refinancing options presented to consumers can also help them to more easily weigh-up their opportunities and make the best informed choices . These results demonstrate the value of integrating behavioural economics into consumer protection policymaking.

Date: 2022-12
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