Financial skills and search in the mortgage market
The result's identifiers
Result code in IS VaVaI
<a href="https://www.isvavai.cz/riv?ss=detail&h=RIV%2F67985998%3A_____%2F24%3A00585688" target="_blank" >RIV/67985998:_____/24:00585688 - isvavai.cz</a>
Alternative codes found
RIV/00216208:11640/24:00585690
Result on the web
<a href="https://www.cerge-ei.cz/pdf/wp/Wp780.pdf" target="_blank" >https://www.cerge-ei.cz/pdf/wp/Wp780.pdf</a>
DOI - Digital Object Identifier
—
Alternative languages
Result language
angličtina
Original language name
Financial skills and search in the mortgage market
Original language description
Are households with low financial skills disadvantaged in the mortgage market? Using stochastic record linking, we construct a unique U.S. dataset encompassing a rich set of mortgage details and borrowers’ characteristics, including their objective financial literacy measure. We find that households with low financial literacy are up to 4% more likely to search less and lock in at 15-20 b.p. higher rates. Upon origination, unskilled borrowers face a 35-45% higher mortgage delinquency and end up with a 30% lower likelihood of refinancing. Overall, for a $100,000 loan, the potential losses from low financial literacy are more than $9,329 over the mortgage duration. To understand how financial education, more accessible mortgages, or mortgage rate changes affect households with low financial literacy, we formulate and calibrate a mortgage search model with heterogeneous search frictions and endogenous financial skills. Our model estimates show that search intensity and financial skill variations contribute to 55% and 10% of mortgage rate variations, respectively. We find that i) more accessible mortgages lead to a higher delinquency risk among low-skilled households, ii) financial education mitigates the adverse effects of increased accessibility, and iii) low mortgage rates favor high-skilled homeowners and, by reinforcing refinancing activity, deepen consumption differences across different financial skill levels.
Czech name
—
Czech description
—
Classification
Type
O - Miscellaneous
CEP classification
—
OECD FORD branch
50202 - Applied Economics, Econometrics
Result continuities
Project
—
Continuities
I - Institucionalni podpora na dlouhodoby koncepcni rozvoj vyzkumne organizace
Others
Publication year
2024
Confidentiality
S - Úplné a pravdivé údaje o projektu nepodléhají ochraně podle zvláštních právních předpisů