Faculty of Science, Technology and Medicine
Faculty of Law, Economics and Finance
Faculty of Humanities, Education and Social Sciences
Interdisciplinary Centre for Security, Reliability and Trust
Luxembourg Centre for Systems Biomedicine
Luxembourg Centre for Contemporary and Digital History
Luxembourg Centre for European Law
Luxembourg Centre for Socio-Environmental Systems
A home is the largest purchase most consumers will make in their lifetimes. Borrowers take out 15, 20 or even 30-year loans to finance their house or apartment. However, initial mortgage rates negotiated with the bank are not set in stone. Decreasing central bank interest rates can lead to more favourable rates for borrowers, and big long-term savings – if they refinance in time. However, many qualified homeowners fail to refinance. Why?
Prior research on the topic has focused mainly on the demand-side part of the equation. That is to say, borrowers themselves and barriers related to psychological and information-gathering costs. François Koulischer, Associate professor in Sustainable Finance from the University of Luxembourg and coauthors Marina Emiris (National Bank of Belgium) and Christophe Spaenjers (Leeds School of Business, University of Colorado Boulder) add a novel dimension to the explanation with the article “Bank Competition and Bargaining over Refinancing” which appeared in the Review of Corporate Finance Studies (Oxford University Press) in May 2026.
With the help of a unique administrative data set containing all mortgages (and consumer loans) held by households in Belgium since 2006, the researchers were able to study refinancing activity for more than 7 million mortgage loans. The database, provided by the National Bank of Belgium, also included information about basic loan characteristics, the location of the borrower, and the identity of the lender.
Using this data, the researchers focused not on only the demand-side, but on the supply-side as well. They found that household refinancing decisions also depend upon how banks compete and negotiate with borrowers. Therefore, it is not only a matter of borrowers being uninformed or inattentive, but also a question of the characteristics of local banking markets. When local banking markets are competitive (presence of many bank branches, high-quality borrowers) more mortgage refinancing occurs, and as a result, borrowers as a whole, pay less for their loans.
According to the research, borrowers should continue to stay attentive to the market and to their refinancing options. Nonetheless, they should also be aware that there are factors in play external to their own decisions — which may or may not be working in their favour.