The maximum loan-to-value ratio Most home-buyers purchase their home with a combination of a cash down payment and a mortgage. The loan-to-value ratio is a rule that establishes the maximum mortgage loan allowed on a home purchase.

a. If a home costs \(\$ 300,000\) and the maximum loan-to-value ratio is \(80 \%\) as in Denmark, what is the minimum down payment?

b. If the maximum loan-to-value is reduced, how will this affect the demand for homes?

c. In Chapter 14 you were referred to The Economist House Price Index. Find that index and look at the behavior of house prices in Canada and the United States from 1970 to 2015. On December 10, 2015, the Canadian Minister of Finance announced an increase in the minimum down payment on any portion of a mortgage more than \(\$ 500,000\). (The announcement can be found at http://www.fin.gc.ca/n15/ 15-088-eng.asp.) Why was this action taken? Do you see an effect on house prices in Canada? What do you conclude?