Journal of Financial Economics Vol. 147 No. 3 2023
Mortgage prepayment, race, and monetary policy
Abstract
Black and Hispanic homeowners pay significantly higher mortgage interest rates than white and Asian homeowners. We show that the main reason is that white and Asian borrowers are much more likely to exploit periods of falling interest rates by refinancing their mortgages or moving. Black and Hispanic borrowers face challenges refinancing because, on average, they have lower credit scores, equity and income. But even holding those factors constant, Black and Hispanic borrowers refinance less, suggesting that other factors are at play. Because they are more likely to exploit lower interest rates, white borrowers benefit more from monetary expansions. Policies that reduce barriers to refinancing for minority borrowers and alternative mortgage contract designs can reduce racial mortgage pricing inequality.
- DOI
- 10.1016/j.jfineco.2022.12.001
- Volume
- 147
- Issue
- 3
- Pages
- 498-524
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref