What's the Catch? Suspicion in Bank Motives and Sluggish Refinancing

Failing to refinance a mortgage can cost a borrower thousands of dollars. Based on administrative data from a large financial institution, we show that around 50% of borrowers leave thousands of dollars on the table by not refinancing. Survey data indicate that, among all the behavioral factors examined, only suspicion of banks motives is consistently related to the probability of accepting a refinancing offer. Finally, we report the results of three field experiments showing that enticing offers made by banks fail to increase participation and may even deepen suspicion. Our findings highlight the important role of trust in financial decisions.