Working paper: Mortgage choice and expenditure over the lifecycle: evidence from expiring interest-only loans

Working paper - January 2020 - No. 150

Authors Andersen, Henrik Yde; Bech, Stine Ludvig; De Stefani, Alessia
Subject household balance sheets; Housing finance
Type Working paper
Year 2020
Published 9 January 2020
We study how homeowners’ consumption responds to the beginning of the amortization period on interest-only mortgages. In response to an average increase in mortgage instalments worth 9 per cent of annual income, consumption drops by 3 percent of income, in the year when amortization starts. This expenditure cut is persistent, but only affects a small subset of borrowers with high leverage ratios. These borrowers might have been unable to rollover their interest-only loans into new ones.