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 for this work

Research output: Contribution to journal › Journal article › Research › 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.

Original language	English
Journal	Journal of Money, Credit and Banking
Volume	54
Issue number	5
Pages (from-to)	1369-1405
Number of pages	37
ISSN	0022-2879
DOIs	https://doi.org/10.1111/jmcb.12879
Publication status	Published - Aug 2022

Bibliographical note

Published online: 13 December 2021.

Keywords

Saving commitments
Permanent income hypothesis
Mortgage run-offs

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Cite this

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title = "Responses to Eliminating Saving Commitments: Evidence from Mortgage Run-offs",

abstract = "We study consumers{\textquoteright} 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.",

keywords = "Saving commitments, Permanent income hypothesis, Mortgage run-offs, Saving commitments, Permanent income hypothesis, Mortgage run-offs",

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note = "Published online: 13 December 2021.",

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T1 - Responses to Eliminating Saving Commitments

T2 - Evidence from Mortgage Run-offs

AU - Andersen, Steffen

AU - d’Astous, Philippe

AU - Martínez-Correa, Jimmy

AU - Shore, Stephen H.

N1 - Published online: 13 December 2021.

PY - 2022/8

Y1 - 2022/8

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

U2 - 10.1111/jmcb.12879

DO - 10.1111/jmcb.12879

M3 - Journal article

SN - 0022-2879

VL - 54

SP - 1369

EP - 1405

JO - Journal of Money, Credit and Banking

JF - Journal of Money, Credit and Banking

IS - 5

ER -