We build an empirical model to attribute delays in mortgage refinancing to psychological refinancing costs that inhibit refinancing until incentives are strong enough; and to behavior---potentially attributable to information-gathering costs---that lowers the probability that a household...

A common problem in household finance is that households are often inactive in response to incentives. Mortgages are generally the largest household liability, and mortgage refinancing is an important channel for monetary policy transmission, so inactivity in this setting can be socially costly....

We build an empirical model to decompose delays in mortgage refinancing into time-dependent inaction (a low probability of responding to a refinancing incentive in a given quarter) and state- dependent inaction (a psychological addition to the financial cost of refinancing). We estimate the...