Financial illiteracy and mortgage refinancing decisions

Bajo, Emanuele; Barbi, Massimiliano

doi:10.1016/j.jbankfin.2018.08.001

Cited by 43 publications

(19 citation statements)

References 34 publications

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“…Grohmann et al. (2018) show that a higher degree of financial literacy strengthens financial inclusion, while poor decisions regarding mortgage refinancing are the result of financial illiteracy (Bajo & Barbi, 2018). A new and positive relationship is found between being financially literate and self‐employed (Ćumurović & Hyll, 2019).…”

Section: Mapping the Trends In Financial Literacy Research In The Lasmentioning

confidence: 99%

Financial literacy: A systematic review and bibliometric analysis

Goyal

Kumar

2020

Int J Consumer Studies

638

335

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Given the paucity of comprehensive summaries in the extant literature, this systematic review, coupled with bibliometric analysis, endeavours to take a meticulous approach intended at presenting quantitative and qualitative knowledge on the ever‐emerging subject of financial literacy. The study comprises a review of 502 articles ‐ published in peer‐reviewed journals from 2000 to 2019. Citation network, page‐rank analysis, co‐citation analysis, content analysis and publication trends have been employed to identify influential work, delineate the intellectual structure of the field and identify gaps. The most prominent journals, authors, countries, articles and themes have been identified using bibliometric analysis, followed by a comprehensive analysis of the content of 107 papers in the identified clusters. The three major themes enumerated are—levels of financial literacy amongst distinct cohorts, the influence that financial literacy exerts on financial planning and behaviour, and the impact of financial education. Additionally, content analysis of 175 papers has been conducted for the last four years’ articles that were not covered in the co‐citation analysis. Emerging themes identified include financial capability, financial inclusion, gender gap, tax & insurance literacy, and digital financial education. A conceptual framework has been modelled portraying the complete picture, following which potential areas of research have been suggested. This study will help policy‐makers, regulators and academic researchers know the nuts and bolts of financial literacy, and identify the relevant areas that need investigation.

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Section: Mapping the Trends In Financial Literacy Research In The Lasmentioning

confidence: 99%

Financial literacy: A systematic review and bibliometric analysis

Goyal

Kumar

2020

Int J Consumer Studies

638

335

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“…Bajo -Barbi (2018) described a similar phenomenon in Italy: although the one-off costs associated with refinancing were practically cancelled in full in 2007, the share of borrowers taking recourse to refinancing was only 13 per cent 8.5 years after the modification.…”

mentioning

confidence: 85%

“…The latter aspect is important because even if the present value of the refinancing is positive, by opting for refinancing the borrower loses the option of refinancing at a more optimal rate after waiting longer. Several studies pointed out that borrowers do not make rational decisions in refinancing situations and are prone to making both potential mistakes: on the one hand, they may miss refinancing opportunities even though they could gain from the transaction (Bajo -Barbi 2018); on the other hand, they often choose to refinance at a sub-optimal time (Chang -Yavas 2009;Agarwal et al 2016). 7 It is important to stress that the earlier literature typically attempts to gauge the optimal time at which it is worthwhile to refinance a fixed-rate loan with another fixed-rate loan.…”

Section: Findings Of the Relevant Literaturementioning

confidence: 99%

Who Can Refinance? The Possibilities and Limitations of Market-based Refinancing in the Case of Mortgages with a Variable Interest Rate

Dancsik¹,

El-Meouch²

2019

Financial and Economic Review

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In our study we examine what portion of variable interest rate mortgages can be profitably and realistically refinanced on a market basis, in the light of remaining maturity, the current one-off costs of refinancing and the prevailing interest rate spread. To that end, relying on microdata we applied various methods (from using the simple banking sector average spread to applying a linear regression model) to estimate the interest rate spread at which debtors would be able to take out a new, variable-rate loan. If the estimated spread of the new loan is adequately low, refinancing may be a financially rewarding option for the debtor. According to our results, 22-31 per cent of the variable interest rate mortgage loans disbursed prior to 2015 could be refinanced in this way assuming conservative lending conditions. Although we focused on the refinancing of variable-rate loans with other variablerate loans directly, our results also indicate that on a market basis, there may be limited room for refinancing variable-rate loans with fixed-rate loans and hence, for mitigating the interest rate risk of the household sector. In our opinion, by easing the obstacles to loan refinancing, the recommendation of the Magyar Nemzeti Bank on interest rate risk may considerably raise the share of debtors switching to fixed-rate loans.

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“…Examining refinancing behavior in Italy,Bajo and Barbi (2018) use unique measures of financial expertise or knowledge (e.g. a degree in finance or economics) to show that take-up of refinancing opportunities is driven by financial sophistication.…”

mentioning

confidence: 99%

Refinancing, Monetary Policy, and the Credit Cycle

Amromin

Bhutta

Keys

2020

Annu. Rev. Financ. Econ.

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We assess the complicated reality of monetary policy transmission through mortgage markets by synthesizing the existing literature on the role of refinancing in policy implementation. After briefly reviewing mortgage market institutions in the USA and documenting refinance activity over time, we summarize the links between refinancing and consumption and describe the frictions impeding the refinancing channel. The review draws heavily on research emerging from the experience of the financial crisis of 2008–2009, as it highlights a combination of market, institutional, and policy-making factors that dulled the transmission mechanism. We conclude with a discussion of potential mortgage market innovations and the applicability of lessons learned to the ongoing stresses induced by the COVID-19 pandemic. Expected final online publication date for the Annual Review of Financial Economics, Volume 12 is November 2, 2020. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

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Financial illiteracy and mortgage refinancing decisions

Cited by 43 publications

References 34 publications

Financial literacy: A systematic review and bibliometric analysis

Financial literacy: A systematic review and bibliometric analysis

Who Can Refinance? The Possibilities and Limitations of Market-based Refinancing in the Case of Mortgages with a Variable Interest Rate

Refinancing, Monetary Policy, and the Credit Cycle

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