The Leibniz Institute SAFE organizes a seminar on
Mortgage Design, Repayment Schedules, and Household Borrowing
Claes Bäckman (SAFE)
22 November, 12:00 - 13:00
Abstract: How does the design of debt repayment schedules affect household borrowing? We study a policy reform in Sweden that eliminated interest-only mortgages for borrowers with loan-to-value ratios above 50\%. We document substantial bunching at the threshold, resulting in a 5\% reduction in borrowing. The results are not driven by supply-side factors or credit constraints. A life-cycle model with kinks in household preferences, consistent with households viewing amortization payments as a cost rather than a form of saving, generates a LTV distribution that matches key features in the data. The results have important implications for mortgage market design.
