Description

This study analyses the potential impact of a recent Financial Portability Law in Chile, which substantially reduces the monetary and time costs of mortgage modification. I show that mortgage refinancing is positively associated with financial education, liquidity needs and the timing for optimal refinancing. A counterfactual exercise shows that the new legislation can substantially increase refinancing rates and bring significant welfare gains, especially if it lowers the cognitive costs of the process. Welfare gains are larger for owners of second properties and top valued homes. Finally, bank switching decisions for consumer loans are found to be unaffected by mortgage refinancing.