Systematic mistakes in the mortgage market and lack of financial sophistication

• 成果类型: Article
• 署名作者: Agarwal, Sumit; Ben-David, Itzhak; Yao, Vincent
• 署名单位: Georgetown University; University System of Ohio; Ohio State University; National Bureau of Economic Research; University System of Georgia; Georgia State University
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2016.01.028
• 发表日期: 2017
• 页码: 42-58
• 关键词: Discount points; Mortgage decision making; Refinancing; leverage; financial literacy; household finance; Inattentiveness

摘要

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. (C) 2016 Elsevier B.V. All rights reserved.