Haider-Moranis Bulletin: If fixed long-term mortgages are such a good thing for borrowers and the economy, why have homebuyers not opted for them in the past?
It’s something to keep in mind when considering suggestions that Bank of Canada Governor Stephen Poloz floated for the Canadian mortgage market in a speech earlier this week.
But if fixed long-term mortgages are such a good thing for borrowers and the economy, why have homebuyers not opted for them in the past? While lenders are usually focussed on imposing penalties or restrictions on prepayments, a 2012 paper in the journal Real Estate Economics noted that they should also recognize their benefits: namely that attractive prepayment options can attract “more creditworthy borrowers.”
The choice of a mortgage has broader impacts on labour market efficiency as well. A 2018 paper in the Journal of Money, Credit and Banking explains that fixed-rate mortgage borrowers impose a negative externality because such mortgages may “discourage borrowers from moving to other regions despite better employment opportunities.”
For the answer, one must consult Section 10 of the Interest Act, which dates to 1880. The Act imposes certain restrictions on a lender’s ability to impose penalties on borrowers should they choose to prepay or redeem a mortgage after the expiration of five years. Poloz also suggested that there may be an interest in developing a private market for mortgage-backed securities in Canada. However, Feldman says that the mismatch between the amortization period and maturity terms would expose security investors “to the risk that the mortgage might not be refinanced at maturity, leading to the need to liquidate the mortgage.” Thus, the mismatch between maturity and amortization acts as a structural constraint.
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.
Getting to the roots of Fiddler on the Roof’s runaway successFiddler: A Miracle of Miracles shows why the musical’s enduring popularity isn’t a miracle at all
Read more »
Statistically, one of the biggest things killing men is men themselvesWe don’t talk about suicide. It's sidelined by stigma, despite the fact it’s the second leading cause of death among Canadian young adults and third leading cause of death in adults under 44. And men account for three-quarters of those deaths. | cbcdocs
Read more »
Gomez: Keuchel in a difficult situationESPN's Pedro Gomez details why former Cy Young winner Dallas Keuchel remains unsigned.
Read more »
10/3 podcast: Why Mark Norman’s case is so important, with Christie BlatchfordThe high-ranking navy officer will not be heading to trial on a charge of breach of trust tied to allegations he leaked sensitive information about a ship contract
Read more »
An Explainer For Why The Mark Norman Saga Isn’t Quite Over YetThe vice-admiral broke his silence after the criminal case against him was dropped
Read more »
Why are we celebrating Red Army conquests in the streets of Toronto?Paul Philip Willis: The Swastika and the Hammer and Sickle both represent pure evil. There ought to be no place for them here
Read more »
Why restaurants need to put more thought into their musicClaudia McNeilly: An eight top bachelorette party is probably going to want to hear something completely different from the Tinder date at the next table over
Read more »
Inside the global persecution of Christians—and why it's only getting worse - Macleans.caQ&A: Father Nadim Nassar, Anglican priest and director of the Awareness Foundation, a charity that encourages diversity and acceptance, on the threats Christianity faces
Read more »
Why Burke thinks Oilers are ‘couple years away’ from playoffs - Sportsnet.caHC analyst Brian Burke joins the Starting Lineup to discuss the Ken Holland hiring in Edmonton, whether he thinks Holland can turn things around quickly, and what his timeline is for them to make the playoffs next.
Read more »