Just two weeks ago, we saw some of the heaviest downward pressure on fixed mortgage rates that we had ever seen.  Bond yields, which is what determined fixed rates, hit their all-time low, and it looked as though there was no bottom in sight. It seemed almost certain that we would start to see 5 year fixed rates below 2% for the first time in history as lower rates were announced daily. 

This abruptly changed on Friday, March 13th when the Bank of Canada made a rare, and quite surprising unscheduled rate announcement, slashing their overnight rate by 0.50%. A few days later, the major banks responded by matching the full rate cut, which all the non-bank lenders then followed (although some do not take effect until April 1st, which is not uncommon).  

 

Prime Rate Dropped by 0.50% and Fixed Rates Increased By 0.50%.  But Why? 

Most people have the false belief that the Bank of Canada rate announcements will have an immediate impact on fixed mortgage rates as well. Anyone who is a regular reader of my blog may recall me saying that the Bank of Canada announcements affect variable rate mortgages and HELOCs only. This became very clear on Friday, March 13th when the BOC rate and fixed rates both experienced radical changes in opposite directions. 

Around the same time the BOC was announcing their cut, US President Donald Trump was giving a speech that sent the stock market soaring, along with the bond yields. The stock market experienced its largest single day point gain in history. While investors enjoyed this short-lived boon, immediate upward pressure was placed on fixed mortgage rates. Scotia immediately announced a 0.25% increase to all their fixed rates.  

The largest single day point gain in the stock market was followed by the largest single day point loss in history, erasing any gains from the previous trading day.  Unfortunately, the bond yields did not experience the same drop. They fell 11% on that day, which is still significant, but nothing compared to the 43% increase from the previous day. Upward pressure on fixed mortgage rates remained.   

The lowest 5 year fixed rates have since increased by greater than 0.50%, with many lenders now above 3%. There are still plenty of options in the 2.69% – 2.89% range, depending on your situation. If the trend continues, then these will soon be over 3% as well.   

 

Rate Increases Temporary? 

We are currently in the middle of both a health crisis and an economic crisis.  It’s going to get worse before it gets better, so it’s likely that rates will start to fall back down again. We’re currently heading up on the roller coaster and are anticipating the next drop. Time will tell of course. For now, they continue to climb. 

 

Further Rate Cuts By the Bank of Canada 

We can expect the BOC to cut rates further. The next scheduled rate announcement is on April 15th, but it’s possible another unscheduled cut will come prior to this date. Mortgage lenders know that further rate cuts are imminent, so prime rate discounts on new mortgages have been significantly reduced. 

Last week I said that it was just a matter of time before we saw the prime rate discounts disappear altogether. I didn’t think it would happen quite this fast however.  Last week, variable rate discounts ranged from prime -1.25% to prime -0.85%. Most lenders are now between prime -0.30% and prime +0.25%. These rates will continue to increase and I’m anticipating variable rate mortgages to be at prime +1.00% soon enough.  

It’s possible that you still may be able to score prime -0.95%…for now, but you have to know the right broker. Wink wink.   Note that this promo can and will disappear soon. 

 

Mortgage Payment Relief For Those Impacted By COVID-19 

Last week, it was announced that big banks, as well as other mortgage lenders will offer mortgage payment deferral for up to six months. This program is also backed by the mortgage insurers, CMHC, Genworth and Canada Guaranty. Pretty much all mortgage lenders will be granting deferred payments to those who need it the most. 

This doesn’t mean that everyone is eligible. It’s only being offered to those who are facing immediate financial hardship due to loss of income caused by COVID-19.  It’s not for those who ‘may’ face work loss, or for those who are finally sound. It’s for those who are living paycheque to paycheque and have now had their income source significantly reduced or eliminated and are now unable to make their payments. 

Note that payments can be deferred by UP TO six months. It doesn’t mean that they WILL be deferred for six months. All inquiries are reviewed on a case by case basis.  Many lenders will take it one month at a time. Every situation is different. 

 

Mortgage Payment Deferral Will Be Costly For Homeowners  

The idea of having your payments deferred by up to six months can sound appealing, however it’s being misunderstood by many. Payment deferral does not mean that your payments disappear. It’s relief from payments, not elimination of payments. 100% of the mortgage payment, including interest AND principal will still apply. It will just get tacked on to the total balance owing, which will increase your cost of borrowing over time. 

If you are faced with a situation where you will not be able to make your next payment, then you’ll want to contact your mortgage lender directly so they can assess your situation.  

 

Heavy Workload In Mortgage Industry Creating Longer Response Times 

Close to one million people applied for EI last week alone.  This list will continue to grow.

The combination of the mortgage rate roller coaster and those facing financial hardship has created about three times the normal workload for the mortgage industry. For this reason, everything is taking much longer than it normally would. In fact, it can take up to a week to get a response to anyone inquiry about deferring payments. Mortgage lenders are committed to ensuring that they get back to everyone as promptly, and they will do anything they can to help those who need it most. 

We are going through an unprecedented time that we will all remember for the rest of our lives. We’re all in this together, and we’ll all get through this together. Like any other crisis in history, it will soon pass. We just have to remain strong and support each other wherever we can. 

 

 

 

Paul Meredith is the author of the Amazon #1 best selling book, Beat the Bank
– How to Win The Mortgage Game in Canada, and has ranked as one of the top
75 mortgage brokers in Canada since 2016. He was a finalist for Mortgage
Broker of the Year in 2018, and can be seen as the exclusive mortgage broker on
season two of TV’s Top Million Dollar Agent.