“Information Frictions in Mortgage Refinancing”

ABSTRACT: Households often fail to refinance mortgages, foregoing substantial savings in interest payments. We implement a large-scale experiment on all mortgage holders in a large Chilean bank to study whether light-touch informational interventions affect the incidence of refinancing and the extent of search. We randomly assign mortgage holders to receive one of five emails about their mortgage and track their search and refinancing behavior over time. These emails differ in the type and extent of the information provided and are each designed to target one possible behavioral friction leading to this inertia. We find that the most effective intervention---giving both information about savings and details of how to refinance---approximately doubles the incidence of refinancing requests, with significantly larger effects for those who would save the most from doing so. Using a simple framework, we discuss the implications of information and search frictions for mortgage rate markups and the passthrough of monetary policy.