Haider-Moranis Bulletin: Regulators looking at changes to mortgage rules should base them on Canadian data, rather than on experiences in the U.S.
Does an increase in interest rates lead to more mortgage defaults in Canada? The prevalent belief among policymakers — and basic economic theory — would seem to suggest that it should. But a recent study that took a look at data on consumer borrowing and spending in Canada is raising some questions about that relationship.
But a recent paper, presented last week at the annual meeting of the American Economic Association, found a different outcome in Canada. The analysis focussed on mortgage resets, which are refinancings or renewals at the end of a term — usually between two to five years in length. In a reset, borrowers renegotiate the mortgage conditions with the lender, including the interest rate, which is changed to reflect the prevalent market conditions.
Consistent with the findings elsewhere, Canadian data also showed that the likelihood of mortgage defaults and delinquencies on instalment loans declined with lower mortgage rates. The mortgage delinquency rate in Canada has been very low for a long time. The authors reported a mortgage delinquency rate of about 0.1 per cent from their data. They also referred to data from the Canadian Bankers Association, which showed that since 2005, the mortgage delinquency rate in Canada has not exceeded 0.5 per cent.
While Canadian policymakers and business leaders routinely cite the American examples, structural differences in mortgage markets between the U.S. and Canada might have contributed to the differences in housing market outcomes. For starters, financial regulations in Canada have always been stricter than those in the U.S. such that NINJA-type loans have been rare in Canada.
Canada Latest News, Canada Headlines
Similar News:You can also read news stories similar to this one that we have collected from other news sources.
The best new things to see and do in Canada in 2020International and domestic travellers are exploring the Great White North in record numbers. No wonder so many new exhibitions, hotels, thrill-rides and other unique diversions are planned for the new year
Read more »
Canada relocating some troops from Iraq to KuwaitChief of the defence staff Gen. Jonathan Vance says the Canadian military is temporarily relocating some soldiers from Iraq to Kuwait.
Read more »
Canada Revenue Agency's tax call centres get a DThe federal government's tax information call centres have received a D grade on a new report card from the Canadian Federation of Independent Business.
Read more »
Harry and Meghan arrive at Canada House in U.K.The Duke and Duchess of Sussex made their return to official duties Tuesday with a visit to Canada House in London, England.
Read more »
Scientist and author Sudhir Jain fell in love with the spirit and expanse of CanadaScientist. Punster. Letter writer. Music fan. Born July 31, 1938, in Dehradun, India; died Sept. 10, 2019, in Calgary, of lymphoma; aged 81
Read more »