Mortgage refinancing is one of the leading avenues for households to relieve themselves of housing loan debt, interest rates, and monthly payments. It is also one of the most viable options for people looking to buy an investment property or start a business.

1. Psychology Explains
Common Mistakes in
Mortgage Refinancing
Primary Residential Mortgage, Inc.

2. Mortgage refinancing is one of the leading avenues for households to relieve themselves
of housing loan debt, interest rates, and monthly payments. It is also one of the most
viable options for people looking to buy an investment property or start a business.
In the U.S., fixed rate mortgage debt is still the dominant form of residential financial
obligation, but refinancing provides ways to lighten the financial load during adverse
economic conditions.
Common Mistakes in Refinancing and the Psychology Behind Them
Economists from the Federal Reserve Bank of Chicago and Georgia State University
conducted a study in 2015 that focused on the reason behind mortgage refinancing
mistakes.
Their study found that borrowers usually choose an interest rate from options provided by
lenders during a particular period. Since interest rates regularly change, 50 percent of
borrowers choose the wrong rate while 17% wait too long for other options, hence
delaying their payment.

3. The study found that the more experienced borrowers commit fewer mistakes than the
new borrowers. Upon learning from previous refinancing experiences, competent
borrowers make sure to refinance at rates closer to optimal. They also have less waiting
time after mortgage rates reach their trigger rates.
Another study from the Federal Bank Reserve of Chicago and University of Chicago
pointed to factors brought by the Great Recession. During this time, many households
took advantage of extracting equities during the housing bubble burst. It resulted in
severe declines in home prices that left people with little or no equity in their homes.
The Great Recession also contributed to many job losses that made a lot of homeowners
unable to refinance and underwrite new mortgages in the absence of a regular source of
income. When a primary channel for accommodative financial services like refinancing
gets blocked, there are fewer stimuli for people to buy homes and file for loans, despite
low-interest rates.

4. Borrowers' Behaviors Towards Mortgage and Housing
The above studies concluded that borrowers have different attitudes in refinancing their
mortgage. Less-experienced borrowers either choose the most viable option among the
available ones or wait too long until interest rates meet their budget. Experienced
borrowers, on the other hand, know when the right time is to refinance and immediately
know which option is optimal.
The housing bubble burst caused by the Great Recession has also significantly affected
people access to a mortgage. Those who were left jobless lost access to low-interest
programs while others ended up with little to no equity in their homes due to acts of
impulse.
Sources:
http://primeresnw.com/
https://pubsonline.informs.org/doi/abs/10.1287/mnsc.2015.2272
https://ideas.repec.org/a/fip/fedhle/00042.html
https://www.sciencedirect.com/science/article/pii/S1364661316300997