With the lock down in place for COVID-19, there are alot of questions about what is happening with the market with the way the Bank of Canada is reacting to this crisis. Tatum is a specialist in breaking down the news and help us gain insight on what the key opportunties are for those looking to buy and sell. Let me know what you think and we can cover any questions you may have next month when she comes back!
Quick introduction about you and what you do...
My name is Tatum Neufeld, I am a Mortgage Broker with Mortgage Tailors and I help clients with purchases, renewals and refinances. Whether clients are looking for a new home, renewing an existing mortgage, refinancing, debt consolidating, or financing revenue properties, I will find them the best possible mortgage that fits their needs.
Bank of Canada recently reduced their rates to 1.25% from 1.75%. What happened?
The overnight rate is the rate the Bank of Canada charges when lending money to financial institutions on an overnight basis. The overnight rate affects the prime rate, which is what variable rates are based on.
The Bank of Canada recently dropped the overnight rate to 1.25% from 1.75% but also made an emergency rate cut, now making the overnight rate 0.75%.
The central bank says that the unscheduled rate decision is a proactive measure taken in light of the negative shocks to Canada’s economy arising from the COVID-19 pandemic and the recent sharp drop in oil prices. It’s clear that the spread of COVID-19 is having serious consequences for Canadian families, and for Canada’s economy.
How did the Variable and Fixed Rate Market reacted to this?
The Prime Rate (which is based on the overnight rate) reduced by 1% with two reductions in the past couple weeks, making the Prime Rate 2.95%. This affects all unsecured loans, lines of credit, and variable rates. However, even though the prime rate dropped, lenders decreased their variable rate discounts, not giving borrowers the full savings.
Fixed rates were at an all time low in the past couple weeks but are slowly creeping back up due to liquidity concerns and heightened credit risk. The increases continued over the weekend and are expected to persist throughout the week.
What does that mean for Buyers looking right now?
Canada’s 5-year bond yield, which impacts fixed mortgage rates, is taking off. This will add further lift to fixed rates, which are already trending up due to liquidity/risk concerns. If you are fixed rate shopping and haven’t already, apply for a rate hold now. Rates can always turn lower and if they do, you can reset your rate if necessary.
When comparing variable vs. fixed rates in the market of uncertainty, it all comes down to clients personal risk tolerance if they want to choose a fixed rate or variable rate mortgage.
If a buyer has removed conditions and is awaiting conditions, can anything be done for me?
It all depends on the lender. If you’ve removed conditions on a property and want to take advantage of the lower rates available, each lender has a different policy for what’s called a ‘float-down.’ Some lenders allow 1 rate drop while others allow as many as you want, with the exception of sometimes lenders publish lower rates for new clients only, making them unavailable for pre-approvals or existing clients.
Stress test suspension, what does that mean?
What they had planned to do was to base the new benchmark rate on the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2%. In view of the current developments, OSFI suspended all of its consultations and policy development on new or revised guidance until conditions stabilize.
However, there has been a recent drop to the benchmark qualifying rate used to qualify borrowers under the stress test from 5.19% to 5.04% to make it easier for those to qualify.
How has COVID-19 affect the way you do your business?
While I primarily work from my home office, with the exception of meeting clients for consultations and signings at the Mortgage Tailors office which I am no longer doing at this time, my day to day has remained fairly the same. Our application and review of documents can all be sent via email, many of our lenders accept e-signatures on specific documents and I can work with clients over the phone or zoom, whatever works best for them.
If a client is thinking of buying when this is all over, what do you recommend they do?
During this time of uncertainty, I would recommend that you try to keep yourself in as strong of a financial position as possible. It’s so important to keep your credit through all of this - don’t miss your payments. Speak to your providers of car loans, student loans, etc. and make arrangements. If you have arrangements made, be sure to get things in writing and keep good records.
Tatum Neufeld, BComm
Phone: (780) 288-0643
Fax: (780) 665-7291