Two structural factors help explain the low arrears rate. First, Canada’s banking regulations, particularly the mortgage stress test, require borrowers to qualify at higher interest rates than those on their loans, making the system more resilient to rate increases.
Second, mortgage default carries significant consequences. Canadian mortgages are generally full-recourse, meaning lenders can pursue borrowers’ other assets if the proceeds from a foreclosure sale do not fully cover the loan.
This differs from several U.S. states during the 2008 housing crash, where lenders in some cases could not pursue borrowers’ other assets, allowing homeowners to walk away from underwater mortgages.
