Mortgage Amortization and Wealth Accumulation

74 Pages Posted: 30 Apr 2020 Last revised: 7 Jul 2020

See all articles by Asaf Bernstein

Asaf Bernstein

University of Colorado at Boulder; National Bureau of Economic Research (NBER)

Peter Koudijs

Stanford GSB; National Bureau of Economic Research (NBER)

Date Written: July 2020


Standard mortgage contracts include periodic debt repayment plans (amortization schedules) designed to build-up illiquid savings in the form of home equity, which can be substantial even from a macroeconomic standpoint. For example, U.S. households invest hundreds of ($) billions each year in mortgage amortization plans – comparable in size to pension program contributions. We provide the first empirical evidence on the causal effects of mortgage amortization on wealth accumulation. Ex-ante, effects are unclear. If increased debt repayments crowd-out households’ non-mortgage savings, rather than alter their consumption/labor supply, there would be no effect on wealth. We use individual administrative data and plausibly exogenous variation in the timing of home purchases surrounding an interest-only mortgage reform in the Netherlands. We find little-to-no change in the accumulation of non-mortgage savings, even four years later, despite a significant increase in debt repayment. This lack of crowding-out implies a surprising near 1-for-1 rise in net worth and little savings-debt fungibility, financed via increased labor supply and reduced expenditures. Results hold using life-events (ex. birth of a child) as an instrument for the timing of home purchase, and appear unaffected by potential selection or confounded treatment concerns. Effects also hold focusing on buyers with substantial liquid savings and across the spectrum of ages, suggesting general applicability beyond just non-savers and the young. Our findings suggest that homeownership, when coupled with amortizing mortgages, is a key driver of household wealth building and inequality, and that the amortization-wealth elasticity is a crucial consideration for macroprudential policies.

Keywords: Mortgage, Amortization, Homeownership, Wealth, Savings, Fungibility, Macroprudential

JEL Classification: G4, G5, G19, G21, G51, J3, R2

Suggested Citation

Bernstein, Asaf and Koudijs, Peter, Mortgage Amortization and Wealth Accumulation (July 2020). Stanford University Graduate School of Business Research Paper No. 3569252, Available at SSRN: or

Asaf Bernstein (Contact Author)

University of Colorado at Boulder ( email )

Campus Box 419
Boulder, CO 80309
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Peter Koudijs

Stanford GSB ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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