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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
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