Thursday, February 06, 2020

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.
Fears that rising interest rates could make it harder for Canadian to make their mortgage payments was one of the motivations behind the tightening of mortgage regulations in Canada. The changes included, among others, the stress test, shortening of the amortization period and new taxes on foreign homebuyers. Policymakers in Canada were no doubt influenced by the experience in the United States, where a boom in subprime mortgages contributed significantly to the Great Recession in 2008. Read entire article...

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