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The Mortgage Piggy Bank: Building Wealth through Amortization


  • Asaf Bernstein
  • Peter Koudijs


Mortgage amortization schedules are among the largest savings plans in the world (e.g. U.S. households contribute hundreds of billions of dollars annually to these “mortgage piggy banks”). However, little is known about their effects on wealth accumulation. Ex-ante, effects are unclear. It depends on the fungibility of home equity and other savings, and households’ willingness to adjust consumption or leisure. Empirically, effects are difficult to identify since amortization and other savings choices are typically codetermined. We overcome this challenge by utilizing a 2013 Dutch reform that increased amortization requirements for new mortgages. Using detailed administrative data, we compare savings decisions for home-buyers right before or after the reform. We use plausibly exogenous variation in the timing of home purchase coming from life-events (e.g. birth of a child) to address selection concerns. Dynamic difference-in- difference estimates support the parallel trend assumption. We find that marginal wealth-building from amortization (MWA) is substantial. Remarkably, households leave other savings untouched and cut consumption and leisure instead, implying a near 1-for-1 rise in net-worth. Results hold at least five years out when additional amortization-induced home equity is larger than other savings. The effect is ubiquitous, holding for unconstrained households, who could easily offset additional amortization, and movers, suggesting a broad applicability of our results. Consistent with a simple model, we do find that estimates are lower for households who appear less financially sophisticated or less willing to adjust short-term consumption. Overall, our results highlight the critical importance of mortgage amortization for household wealth-building and macroprudential policies.

Suggested Citation

  • Asaf Bernstein & Peter Koudijs, 2021. "The Mortgage Piggy Bank: Building Wealth through Amortization," NBER Working Papers 28574, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:28574
    Note: AG CF LS PE

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    Cited by:

    1. Christian A. L. Hilber & Olivier Schoni, 2022. "Housing policy and affordable housing," CEP Occasional Papers 56, Centre for Economic Performance, LSE.
    2. Ashleigh Eldemire & Kimberly F Luchtenberg & Matthew M Wynter, 2022. "Does Homeownership Reduce Wealth Disparities for Low-Income and Minority Households?," Review of Corporate Finance Studies, Oxford University Press, vol. 11(3), pages 465-510.
    3. Catherine, Sylvain & Yannelis, Constantine, 2023. "The distributional effects of student loan forgiveness," Journal of Financial Economics, Elsevier, vol. 147(2), pages 297-316.
    4. Yanwen Wang & Muxin Zhai & John G. Lynch, 2023. "Cashing Out Retirement Savings at Job Separation," Marketing Science, INFORMS, vol. 42(4), pages 679-703, July.

    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G4 - Financial Economics - - Behavioral Finance
    • G5 - Financial Economics - - Household Finance
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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