Amortization Requirements May Increase Household Debt is popular PDF and ePub book, written by Mr.Lars E. O. Svensson in 2016-04-07, it is a fantastic choice for those who relish reading online the Business & Economics genre. Let's immerse ourselves in this engaging Business & Economics book by exploring the summary and details provided below. Remember, Amortization Requirements May Increase Household Debt can be Read Online from any device for your convenience.
Amortization Requirements May Increase Household Debt Book PDF Summary
Debt amortization requirements have been suggested as a way to reduce household indebtedness. However, a closer look reveals that amortization requirements may create incentives for both borrowers and lenders to borrow and lend more rather than less. Suppose that a household plans to finance a given housing purchase through a preferred future mortgage path. If that mortgage path violates a new amortization requirement, the household can still achieve its preferred mortgage path, net after savings, by initially borrowing more, investing the excess borrowing in a savings account, and fulfilling the amortization requirement by withdrawals from the savings account over time. This is obvious, if the savings interest rate equals the mortgage rate, because then the excess borrowing is costless. But even if the savings interest rate is less than the debt interest rate, so that the excess borrowing is costly, there remains a strong incentive to initially borrow more than without an amortization requirement. Furthermore, under these circumstances, it is profitable and quite riskless for banks to let borrowers borrow more and invest the excess borrowing in a savings account in the bank, giving lenders an incentive to lend more, not less, than without amortization requirements. Thus, amortization requirements as a way of reducing household indebtedness may be counterproductive.
Detail Book of Amortization Requirements May Increase Household Debt PDF
- Author : Mr.Lars E. O. Svensson
- Release : 07 April 2016
- Publisher : International Monetary Fund
- ISBN : 9781484321843
- Genre : Business & Economics
- Total Page : 38 pages
- Language : English
- PDF File Size : 20,5 Mb
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