Out of Sight, Out of Mind: Financial Illiteracy and Sluggish Mortgage Refinancing
نویسندگان
چکیده
We analyze the effect of an exogenous shock to the Italian mortgage market and we show that most households do not act rationally when it comes to take mortgage-refinancing decisions. Thanks to a new legislation passed in 2007, borrowers have been allowed to refinance their loans at no cost. This reform— along with the drop of interest rates occurred between 2008 and 2009—has produced a unique opportunity to refinance fixed rate mortgages with substantial gains. However, only a minority of borrowers has shown this rational behavior. This sub-optimal choice is strongly associated with sociodemographic characteristics and with the level of financial illiteracy. JEL Classification: G14; G32.
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