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Refinancing Inertia in the Irish Mortgage Market

Author

Listed:
  • Devine, Kenneth

    (Central Bank of Ireland)

Abstract
Mortgage refinancing is a key household financial decision, with those who fail to refinance losing out on substantial monetary savings. Using a loan level dataset of Irish mortgages, this paper estimates that approximately 67% per cent of unconstrained borrowers did not take up a cost free refinancing offer from their financial institution when it was optimal to do so. I estimate average borrower foregone savings to be €5,400 over the remaining term of the mortgage. This represents a significant household financial mistake, particularly for vulnerable cohorts. I explore the role of borrower and mortgage characteristics, with the presence of financial distress acting as a primary factor in the low levels of engagement.

Suggested Citation

  • Devine, Kenneth, 2022. "Refinancing Inertia in the Irish Mortgage Market," Research Technical Papers 5/RT/22, Central Bank of Ireland.
    • Handle: RePEc:cbi:wpaper:5/rt/22
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    File URL: https://www.centralbank.ie/docs/default-source/publications/research-technical-papers/refinancing-inertia-irish-mortgage-market.pdf?sfvrsn=80a1971d_9
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    References listed on IDEAS

    as
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    Cited by:

    1. Byrne, Shane & Devine, Kenneth & McCarthy, Yvonne, 2022. "Interrupting inertia: evidence from a mortgage refinancing field trial," Economic Letters 9/EL/22, Central Bank of Ireland.
    2. Scott, David & Pratap Singh, Anuj, 2024. "Mortgage switching through the turning of the interest rate cycle," Financial Stability Notes 2/FS/24, Central Bank of Ireland.

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    More about this item

    Keywords

    Mortgages; Refinancing; Household Finance.;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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