Jobs Influence Arrears More Than Rates

It’s harder to make a mortgage payment when rates go up.

It’s much much harder when you don’t have a job.

That’s why mortgage delinquencies tend to track unemployment closer than they follow rising interest rates.

Here’s a graphical look at the relationship between arrears, unemployment and interest rates…

Mortgage-Default-Risk(Click chart to enlarge)


Despite the above, if rates were ever to soar (say 4%+), that would be an exception and all bets would be off. Many of today’s leveraged consumers, which comprise a small percentage of mortgagors, wouldn’t be able to handle debt servicing at those levels. That would certainly spike arrears to some degree, among other economic damage.

On the other hand, economic fundamentals likely won’t justify, and monetary policy likely won’t permit, a 5.00% overnight rate anytime soon.

The overnight rate (aka., “key lending rate”) is at 1.00% today, and is the foundation for a wide array of borrowing costs—from mortgages and credit cards to loans and lines of credit.


Chart source: Scotia Capital. Special thanks to the Montreal Gazette’s Allison Lampert for the link.


Rob McLister, CMT

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