Paying Too Much? Borrower Sophistication and Overpayment in the US Mortgage Market

Neil Bhutta, Andreas Fuster and Aurel Hizmo

No 24-11, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: Comparing mortgage rates that borrowers obtain to rates that lenders could offer for the same loan, we find that many homeowners significantly overpay for their mortgage, with overpayment varying across borrower types and with market interest rates. Survey data reveal that borrowers’ mortgage knowledge and shopping behavior strongly correlate with the rates they secure. We also document substantial variation in how expensive and profitable lenders are, without any evidence that expensive loans are associated with a better borrower experience. Despite many lenders operating in the US mortgage market, limited borrower sophistication may provide lenders with market power.

Keywords: Mortgage; price dispersion; consumer search; financial literacy; interest rates (search for similar items in EconPapers)
JEL-codes: D14 D18 D83 E43 G21 G53 (search for similar items in EconPapers)
Pages: 92
Date: 2024-06-18
New Economics Papers: this item is included in nep-ban, nep-fmk and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Paying Too Much? Borrower Sophistication and Overpayment in the US Mortgage Market (2024)
Working Paper: Paying Too Much? Borrower Sophistication and Overpayment in the US Mortgage Market (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:98395

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DOI: 10.21799/frbp.wp.2024.11

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