Abstract

This paper investigates whether carrying a mortgage affects homeowners' subjective financial risk tolerance. While previous studies have explored the relationship between household debt and risk-taking, most compare homeowners with renters, we focus exclusively on homeowners and compare individuals with an outstanding mortgage to those who own their homes outright. Using original survey data collected in 2024–2025 from 4,296 respondents, among which 1,715 respondents that provided a valid answer, across Finland, Germany, Italy and Spain, we estimate the causal effect of mortgage holding on risk tolerance through Propensity Score Matching. The results indicate that, after balancing observable characteristics, homeowners with a mortgage report significantly lower financial risk tolerance than otherwise comparable outright owners, supporting the debt-burden hypothesis rather than the self-selection hypothesis. Overall, the evidence suggests that mortgage indebtedness is associated with a reduction in households' willingness to undertake additional financial risk, highlighting the importance of leverage in shaping financial decision-making.

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