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Closing Costs, Refinancing, and Inefficiencies in the Mortgage Market David Zhang May 27, 2024Abstract I use a structural model to quantify crosssubsidization and identify inefficiencies in US mortgage refinancing. The presence of borrowers with high refinancing inertia reduces mortgage interest rates by 0.210.97 percentage points, primarily on lower upfront closing cost mortgages with more valuable refinancing options. As a result, actively refinancing borrowers refinance excessively relative
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