February 20th, 2019 8:03 AM by Jackie A. Graves, President
FREEHomeRefinanceAnalysis FREEFHAStreamlineRefinanceAnalysis FREEVAStreamlineRefinanceAnalysis
Many homeowners show a reluctance toward refinancing, believing
that some offers from banks may be “too good to be true.” But their suspicions
may be costing them thousands of dollars in savings, according to a new study
in the February Issue of The Review of Financial
Studies from Columbia Business School researchers.
Fifty-one percent of
550,000 borrowers who were sent preapproval applications through the Home
Affordable Refinance Program between November 2011 and March 2013 chose not to
refinance their mortgages, even though there were no monetary costs for them to
do so and they could have lowered their mortgage rate, the study showed. For
those who did not apply, they may have missed out on nearly $9,000 in savings,
according to the study.
Eric J. Johnson, Stephan Meier, and Olivier Toubia say that a separate survey
of 4,000 homeowners showed banks’ motives consistently related to the
probability of homeowners’ accepting a refinancing offer. Some financial
institutions tried to help overcome some of borrowers’ hesitations, such as by
offering $500 cash back rewards if the refinancing process took more than 30
days or by offering an immediate benefit for applying, like a gift card.
those interventions also failed to motivate borrowers to act.
highlight the important role of trust in financial decisions,” the authors note
in the study.
say it could be that some homeowners may have ignored the offers in the mail.
But “ignoring this one could be costly,” they note. “This failure to refinance
is costly for society as well, since lower payments reduce defaults.”
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