Responses to Eliminating Saving Commitments: Evidence from Mortgage Run-offs

Steffen Andersen; Philippe d’Astous; Jimmy Martínez-Correa; Stephen H. Shore

doi:10.1111/jmcb.12879

Responses to Eliminating Saving Commitments: Evidence from Mortgage Run-offs

Steffen Andersen, Philippe d’Astous, Jimmy Martínez-Correa, Stephen H. Shore^*

^*Corresponding author af dette arbejde

Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › peer review

Abstract

We study consumers’ responses to removing a saving constraint. Mortgage run-offs predictably relax a saving constraint for borrowers whose mortgage committed them to save by paying down principal. Using the entire Danish population, we identify mortgages on track to run off between 1995 and 2014. We measure the effect of run-offs on earnings and the household balance sheet. We find that borrowers use 39% of previous mortgage payments to decrease labor income and use 53% to pay down other debts. Borrowers run up nonmortgage debt prior to the run-off and this run-up stops once the mortgage is repaid.

Originalsprog	Engelsk
Tidsskrift	Journal of Money, Credit and Banking
Vol/bind	54
Udgave nummer	5
Sider (fra-til)	1369-1405
Antal sider	37
ISSN	0022-2879
DOI	https://doi.org/10.1111/jmcb.12879
Status	Udgivet - aug. 2022

Bibliografisk note

Published online: 13 December 2021.

Emneord

Saving commitments
Permanent income hypothesis
Mortgage run-offs

Adgang til dokumentet

10.1111/jmcb.12879Licens: Ikke-specificeret

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Citationsformater

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AU - Andersen, Steffen

AU - d’Astous, Philippe

AU - Martínez-Correa, Jimmy

AU - Shore, Stephen H.

N1 - Published online: 13 December 2021.

PY - 2022/8

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N2 - We study consumers’ responses to removing a saving constraint. Mortgage run-offs predictably relax a saving constraint for borrowers whose mortgage committed them to save by paying down principal. Using the entire Danish population, we identify mortgages on track to run off between 1995 and 2014. We measure the effect of run-offs on earnings and the household balance sheet. We find that borrowers use 39% of previous mortgage payments to decrease labor income and use 53% to pay down other debts. Borrowers run up nonmortgage debt prior to the run-off and this run-up stops once the mortgage is repaid.

AB - We study consumers’ responses to removing a saving constraint. Mortgage run-offs predictably relax a saving constraint for borrowers whose mortgage committed them to save by paying down principal. Using the entire Danish population, we identify mortgages on track to run off between 1995 and 2014. We measure the effect of run-offs on earnings and the household balance sheet. We find that borrowers use 39% of previous mortgage payments to decrease labor income and use 53% to pay down other debts. Borrowers run up nonmortgage debt prior to the run-off and this run-up stops once the mortgage is repaid.

KW - Saving commitments

KW - Permanent income hypothesis

KW - Mortgage run-offs

KW - Saving commitments

KW - Permanent income hypothesis

KW - Mortgage run-offs

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