Chasing Lower Rates: How Households Balance Refinancing Incentives and Debt Constraints

Jiri Gregor and Jan Janku

Working Papers from Czech National Bank, Research and Statistics Department

Abstract: This paper examines the determinants of early mortgage refinancing in a market dominated by fixed-rate loans with comparatively short reset periods. Drawing on a matched loan-level dataset covering 2015–2024, we estimate panel logit and Cox proportional hazards models to assess how borrower characteristics market conditions, and macroprudential constraints jointly shape refinancing behaviour. The results show that households react strongly to the spread between their contractual mortgage rate and prevailing market rates, as well as to signals of future rate increases, highlighting the refinancing channel as an important conduit for the transmission of monetary policy even in fixed-rate environments. We further document that borrower indebtedness-captured by LTI, LSTI, and LTV-affects refinancing in a nonlinear manner. Moderate levels of these indicators enhance sensitivity to interest-rate incentives and facilitate refinancing, whereas very elevated values limit the borrower's opportunity or capacity to refinance.

Keywords: Hazard models; household finance; indebtedness; refinancing (search for similar items in EconPapers)
JEL-codes: C41 D14 E52 G21 (search for similar items in EconPapers)
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