The past few months have been a roller coaster for mortgage rates. In early March, they were falling faster than we could keep up with. We would quote a rate, only to see a lower rate the next day…. then again the next.
This made mortgage shopping a little more difficult.
You would get one quote, and then a lower quote from a different mortgage professional the following day. Like many, you may then choose to go with the mortgage professional offering the lower rate, but what you may not know is that the first mortgage professional’s rate may have dropped to even lower, without notice.
This happens frequently in a changing rate environment.
The opposite effect can happen when rates are increasing. You might get quotes from multiple mortgage professionals, only to find that the first one was the lowest. But by the time you come back take advantage of their offer, it might be too late. When things change, they can change fast.
In mid-March, the rapid, downward trend in mortgage rates abruptly reversed, and rates began rising quickly. Lenders across the board started to slash their variable rate discounts. It was a prime example of mortgage lender panic.
But who wasn’t panicking at that time? None of us knew what to expect.
The financial markets responded with record swings in both directions. The bond yields, which are the key determining factor in fixed mortgage rates, were responding with similar swings.
As a result, mortgage lenders had no choice but to protect themselves with higher rates.
The Return of Our Economy… Along With Lower Mortgage Rates
Fast forward to today. Businesses are starting to re-open, the number of new COVID cases are dropping, as is the number of active cases. Consumer confidence is growing, and many who were holding off on purchasing homes are now starting to actively shop. We’re starting to get more and more inquires for mortgage preapprovals as many who were waiting out the pandemic are now ready to start actively shopping for a new home.
Lender confidence is also growing, which is allowing them to loosen their collars and start to come down from their inflated ‘panic’ rates.
Today’s Lowest Mortgage Rates
5 year fixed rates have now dropped to as low as 1.99% for insured mortgages (less than 20% down payment, or those that originally had less than 20% down). For those with 20% or greater, 5 year fixed rates range from 2.09% to 2.34%*, depending on your situation.
Mortgage lenders have also started to bring back their discounts on variable rate mortgages as well. Variable rates now range from prime -0.60% (1.85%) to prime -0.30% (2.15%)*, depending on your situation.
How Much Lower Will Mortgage Rates Go?
Even though we’ve reached new record lows for fixed mortgage rates, there is still room for lenders to drop further. Mortgage lenders are still being cautious, and despite how low rates have become, they are still slow to reduce rates down to where they should be.
As mentioned, one of the key drivers of fixed mortgage rates is bond yields, which are currently at 0.38 (as I type this). Lenders will then set their fixed rates between 1.25% – 1.50% higher than the bond yield. This means that 5 year fixed rates should be between 1.63 – 1.88%.
With variable rate mortgages, lenders will look for the same spread, but in this case, it’s based on the Bank of Canada overnight rate, which is currently 0.25%. This means variable rates should be between 1.50% – 1.75%.
Providing the bond yields, and overnight rate remains at these record low levels, which is expected for some time, there is a good chance that we’ll see mortgage rates trickle down further. As long as there is economic uncertainty however, lenders may still maintain somewhat inflated spreads.
Anything Can Happen
No one can say for sure what will happen, and no one has a crystal ball. All we can do is base predictions on the current economic scenario, and where it’s expected to go. Things can always change. In 2018, leading economists were predicting that 5 year fixed mortgage rates would rise to 5 – 6% by 2021. In late 2019, it was being predicted that we could see one to two increases to prime rate before the end of 2020. Two increases would have put the prime rate to 4.45% by the end of this year. A full 2% over where it is right now. No one could have predicted a pandemic, which led to the Bank of Canada slashing their overnight rate by an unprecedented 1.50% within a month. Complete reversal of previous predictions.
Prime rate remains at 2.45%, where I believe it will remain into 2022. I would not be surprised if it maintained this level for longer. When it does increase, increases are expected to be small. Time will tell.
*The lowest mortgage rates apply to mortgages with less than 20% down payment (therefore insured), or when purchases were originally insured. The next lowest rates apply to those with 25-35% down payment, providing that the home value is under $1 million, OR the home was originally purchased prior to November 30th, 2016. Maximum amortization is 25 years. Mortgage rates on properties valued at over $1 million or with 30 year amortization are around 2.34% for 5 year fixed, or anywhere from prime -0.40% (2.05) to prime -0.30% (2.15%) for 5 year variable. Lowest rates are for owner occupied properties only, and rental properties are generally priced higher. Some exceptions may apply. Please reach out to us directly to find out which mortgage rate you are eligible for.
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The Paul Meredith Team will be donating $250 to local food banks for every mortgage we fund from April 30-July 31st, 2020.
With well over one million Canadians now out of work, the food banks need our help more than ever.
For this period in 2019, we closed 93 mortgages, which would have meant a donation of $23,250! We want to exceed this number this year! Regardless of whether you are purchasing, refinancing, or have a mortgage coming up for renewal, all closed mortgages closed through the Paul Meredith Team will add to the total donated.