The Mortgage Piggy Bank: Building Wealth through Amortization
Mortgage amortization schedules are illiquid savings plans comparable in size to pension programs; however, little is known about their effects on wealth accumulation. Using individual administrative data and plausibly exogenous variation in the timing of home purchase (ex. childbirth-driven) around a 2013 Dutch reform, we find a near one-for-one rise in net worth for each dollar of amortization. Households leave other savings and liabilities unchanged, and instead increase labor supply and reduce consumption. Effects hold even for regular savers and older households. This has important macroprudential implications and suggests homeownership financed via amortizing mortgages is instrumental for household wealth building.
We would like to thank seminar participants at AREUEA Virtual Seminar, Baruch College, CFDM Lab Group, CU Boulder finance lunch, FDIC Consumer Research Symposium, Finance in the Cloud Conference, MIT Sloan Junior Finance Conference, NBER SI Corporate Finance 2020, and Stanford GSB Finance. We would also like to thank Adrien Auclert, Claes Backman, Bo Becker, John Beshears, Matteo Benetton, John Campbell, Taha Choukhmane, Tony Cookson, Anthony DeFusco, Daniel Fernandes, John Lynch, Marco Di Maggio, Anastassia Fedyk, Nicolae Garleanu, Amir Kermani, Benjamin Keys, Laura Kodres, Arvind Krishnamurthy, Deborah Lucas, Gustavo Manso, Patrick Moran, Jordan Nickerson, Terrance Odean, Michaela Pagel, Christopher Palmer, Jonathan Parker, Daniel Paravisini, Giorgia Piacentino, Kasper Roszbach, Antoinette Schoar, David Schoenherr, Felipe Severino, Amir Sufi, David Sraer, Daan Struyven, Jialan Wang, Emil Verner, and Erkki Vihriala for helpful comments. The authors have no relevant funding or competing interests to disclose. Previous versions of this paper circulated under the title “Mortgage Amortization and Wealth Accumulation.” The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.