Mortgage Design, Repayment Schedules, and Household Borrowing

72 Pages Posted: 5 Jun 2024

See all articles by Claes Bäckman

Claes Bäckman

Leibniz Institute for Financial Research SAFE

Patrick Moran

University of Copenhagen

Peter van Santen

Sveriges Riksbank

Date Written: June 04, 2024


How does the design of debt repayment schedules affect household borrowing? To answer this question, we exploit a Swedish policy reform that eliminated interest-only mortgages for loan-to-value ratios above 50%. We document substantial bunching at the threshold, leading to 5% lower borrowing. Wealthy borrowers drive the results, challenging credit constraints as the primary explanation. We develop a model to evaluate the mechanisms driving household behavior and find that much of the effect comes from households experiencing ongoing flow disutility to amortization payments. Our results indicate that mortgage contracts with low initial payments substantially increase household borrowing and lifetime interest costs.

Note: Funder Statement: We gratefully acknowledge research support from the Leibniz Institute for Financial Research SAFE. Claes Bäckman would like to thank Jan Wallanders och Tom Hedelius stiftelse for generous financial support. The empirical analysis in this paper was done when van Santen worked at the Financial Stability Department of Sveriges Riksbank. The views expressed in this paper are solely those of the authors and do not represent the views of the Federal Reserve Board, the Federal Reserve System, or the Sveriges Riksbank.

Keywords: Mortgage design, Amortization payments, Macroprudential policy, Bunching

JEL Classification: G51, G21, E21, E6

Suggested Citation

Bäckman, Claes and Moran, Patrick and van Santen, Peter, Mortgage Design, Repayment Schedules, and Household Borrowing (June 04, 2024). SAFE Working Paper No. 421, Available at SSRN: or

Claes Bäckman (Contact Author)

Leibniz Institute for Financial Research SAFE ( email )

House of Finance
Theodor-W.-Adorno-Platz 3
Frankfurt, 60323

Patrick Moran

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165

Peter Van Santen

Sveriges Riksbank

Brunkebergstorg 11
SE-103 37 Stockholm

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