Do Borrowers Make Rational Choices on Points and Refinancing? |
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Authors: | Yan Chang Abdullah Yavas |
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Institution: | 1. Freddie Mac, McLean, VA 22102 or yan_chang@freddiemac.com.;2. School of Business, University of Wisconsin–Madison, Madison, WI 53706 or ayavas@bus.wisc.edu. |
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Abstract: | Utilizing individual mortgage data, we find that borrowers with points are less likely to refinance, and when they do, they take longer to refinance. This finding supports the separating equilibrium prediction of earlier studies that borrowers with higher (lower) refinancing costs self‐select into mortgages with higher‐point/lower‐rate (lower‐point/higher‐rate) loans. |
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