Mortgage choice and expenditure over the lifecycle: Evidence from expiring interest-only loans

Arbeitspapier

We study how homeowners' consumption responds to a negative and anticipated disposable income shock: the beginning of the amortisation period on interest-only mortgages. We identify spending behavior through an event study approach, by matching loan-level data that covers the universe of Danish mortgages to detailed administrative registries on borrowers. In response to an average increase in installments worth 9 percent of income, consumption drops by 3 percent of income, in the year when amortisation begins. The reduction in expenditure is persistent. Borrowers who fail to smooth consumption are highly leveraged, handto- mouth consumers, likely to be unable to obtain a new interest-only loan.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Danmarks Nationalbank Working Papers ; No. 150

Classification and Topics

• Classification: Wirtschaft ; Intertemporal Household Choice; Life Cycle Models and Saving ; Macroeconomics: Consumption; Saving; Wealth
• Subject: Interest-only ; Mortgages ; Consumption

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Andersen, Henrik Yde ; Bech, Stine Ludvig
• Event: Veröffentlichung
• (who): Danmarks Nationalbank
• (where): Copenhagen
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/227868
• Last update: 10.03.2025, 11:45 AM CET