Presenta: Juan Diego Luksic, Ministerio de Vivienda.
Abstract:
To reduce the mortgage burden, governments typically face two choices: lowering the down payment or reducing monthly payments. This decision can be framed as a trade-off between the mortgage interest rate and the opportunity cost of public resources. However, there is a third option—a conditional monthly payment subsidy. This study evaluates a program that reduces mortgage payments for borrowers who make on-time payments, thereby incentivizing timely repayment. Using a regression discontinuity design at different eligibility thresholds, I find that the program reduces delinquency and default rates by approximately 50\%. This effect is significant for borrowers receiving a 10\% discount compared to those receiving no subsidy, but it does not persist for those receiving additional discounts. Moreover, the reduction in default cannot be fully explained by improvements in the debt-to-income ratio, suggesting a strong behavioral response. Robustness and placebo tests confirm that the results hold across different sample selections and are unlikely to be driven by the program’s cutoff structure. These findings provide new insights into the effectiveness of conditional mortgage subsidies in improving borrower behavior and financial stability.
