Systematic mistakes in the mortgage market and lack of financial sophistication |
| |
| Authors: | Sumit Agarwal Itzhak Ben-David |
| |
| Institution: | 1. Georgetown University, McDonough School of Business, 3700 O Street NW, Washington DC 20057, United States\n;2. Fisher College of Business, The Ohio State University, and NBER, 2100 Neil Avenue, Columbus, OH 43210, United States\n;3. J. Mack Robinson College of Business, Georgia State University, 35 Broad Street, Atlanta, GA 30303, United States\n |
| |
| Abstract: | Institutions often offer a menu of contracts to consumers in an attempt to create a separating equilibrium that reveals borrower types and provides better pricing. We test the effectiveness of a specific set of contracts in the mortgage market: mortgage points. Points allow borrowers to exchange an upfront amount for a decrease in the mortgage rate. We document that, on average, points takers lose about $700. Also, points takers are less financially savvy (less educated, older), and they make mistakes on other dimensions (e.g., inefficiently refinancing their mortgages). Overall, our results show that borrowers overestimate how long they will stay with the mortgage. |
| |
| Keywords: | Discount points Mortgage decision making Refinancing Leverage Financial literacy Household finance Inattentiveness D03 D12 D14 D18 G01 G21 |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
