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Discounting in Mortgage Markets

Jason Allen (), Robert Clark () and Jean-François Houde

Staff Working Papers from Bank of Canada

Abstract: This paper studies discounting in mortgage markets. Using transaction-level data on Canadian mortgages, we document that over time there’s been an increase in the average discount, along with substantial dispersion. The standard explanation for dispersion in credit markets is that lenders engage in risk-based pricing. Our setting is unique since contracts are guaranteed by government-backed insurance, meaning risk cannot be the main driver of dispersion. We find that mortgage rates depend on individual, contractual, and shopping market characteristics. There is also an important amount of unobserved heterogeneity in rates, which could be attributed to search costs.

Keywords: Financial institutions; Financial services (search for similar items in EconPapers)
JEL-codes: D4 G21 L0 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2011
New Economics Papers: this item is included in nep-ban, nep-bec and nep-ure
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Citations: View citations in EconPapers (4) Track citations by RSS feed

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Persistent link: https://EconPapers.repec.org/RePEc:bca:bocawp:11-3

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