How Do Interest-only Mortgages Affect Consumption and Saving over the Life Cycle?

Linda Sandris Larsen, Claus Munk*, Rikke Sejer Nielsen, Jesper Rangvid

*Corresponding author af dette arbejde

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Abstract

Using a unique data set with detailed information on Danish households and their mortgages, we show that young and old households are more likely to use interest-only (IO) mortgages compared with middle-aged households. Young households use IO mortgages because they expect higher future income and old households because IO mortgages allow them to circumvent an otherwise binding liquidity constraint. Through different channels, IO mortgages thus facilitate consumption smoothing for young and old households. Our detailed data also allow us to examine how households with IO mortgages differ from households with repayment mortgages in terms of leverage, debt and asset composition, and pension contributions.
OriginalsprogEngelsk
TidsskriftManagement Science
Vol/bind70
Udgave nummer3
Sider (fra-til)1970-1991
Antal sider22
ISSN0025-1909
DOI
StatusUdgivet - mar. 2024

Bibliografisk note

Published online 18 May 2023.

Emneord

  • Interest-only mortgages
  • Micro data
  • Consumption and savings pattern
  • Life cycle planning
  • Financial constraints

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