Financial illiteracy and mortgage refinancing decisions

Emanuele Bajo and Massimiliano Barbi

Journal of Banking & Finance, 2018, vol. 94, issue C, 279-296

Abstract: We analyze the effect of an exogenous shock to the Italian mortgage market, where a reform has abolished prepayment fees and simplified mortgage refinancing, making it a virtually cost-free decision for households. This law, along with the considerable drop in market interest rates, has generated important gains for fixed-rate borrowers, which we quantify at up to 15% of the principal balance. Nevertheless, only about 13% of borrowers have locked in this opportunity. We study the relationship between this sluggish behavior and their level of financial literacy.

Keywords: Mortgage refinancing; Financial literacy; Household finance (search for similar items in EconPapers)
JEL-codes: G14 G32 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0378426618301687
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:94:y:2018:i:c:p:279-296

DOI: 10.1016/j.jbankfin.2018.08.001

Access Statistics for this article

Journal of Banking & Finance is currently edited by Ike Mathur

More articles in Journal of Banking & Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().