Systematic mistakes in the mortgage market and lack of financial sophistication

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• 作者：Sumit Agarwal^a ; ^{ushakri@yahoo.com} ; Itzhak Ben-David^b ; ^{bendavid@fisher.osu.edu} ; Vincent Yao^c ; ^{wyao2@gsu.edu}
• 关键词：Discount points ; Mortgage decision making ; Refinancing ; Leverage ; Financial literacy ; Household finance ; Inattentiveness
• 刊名：Journal of Financial Economics
• 出版年：2017
• 出版时间：January 2017
• 年：2017
• 卷：123
• 期：1
• 页码：42-58
• 全文大小：1207 K
• 卷排序：123

文摘

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.