Responses to Saving Commitments: Evidence from Mortgage Run-offs

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 percent of previous mortgage payments to decrease labor income, and use 53 percent to pay down other debts. Borrowers run up non-mortgage debt prior to the run-off and this run-up stops once the mortgage is repaid.