Financial illiteracy and mortgage refinancing decisions

•We study the effect of a reform abolishing prepayment fees and simplifying mortgage refinancing in Italy.•Although important gains were in place, only 13% of fixed-rate borrowers refinanced their loan.•The less educated, the poor, immigrants, women, and households in the south of Italy are less likely to refinance their loan.•Financial literacy and an educational background in economics or finance increase the refinancing propensity of borrowers.