A Message from Click Mortgage, and The Latest In Mortgage News (as of 11:59pm Sunday anyway!)
5 -MINUTE READ
Before we get into any of the mortgage news (and there is a lot of it) we want to take a moment and assure you that lenders, insurers (like CMHC), and policy makers are all working hard to sure borrowers and lenders, and by extension our financial system, are protected. It is too early to provide guidance on what those measures will look like, but major policy announcements are expected within the coming days (if not hours).
With the closure of schools in many provinces, including all schools and daycares in Alberta, and with the uncertainty we are all facing, many of us are concerned about our own (or a loved one or friend’s) financial health and personal well-being, including mental health.
If at any time you think you may not be able to make your mortgage payments, we urge you to contact your lender before any payments are missed. Lenders, insurers, and policy makers are all deeply concerned with ensuring borrowers are prevented from defaulting on their mortgages.
If you are having difficulty coping with everything that is going on, here is a list of mental health resources across Canada, organized by province. You are not alone, and we are all in this together.
We wanted to acknowledge that the struggle is real and is hitting us all in different ways. At the same time, we want to stay focused on what is relevant to this space, not fan the flames of panic or unrest, and stick to what we know. We’re going to do our best to stay light-hearted, while respecting that what is going on with COVID-19 and Coronavirus should be taken seriously by all.
Take care of yourself, and each other.
Jeff Blanchette and Andrew Sikomas
We now return to your regularly scheduled programming.
TL;DR: Things are changing by the hour, and further volatility is expected. If you’re buying or renewing, in the next 4-5 months GET A RATE HOLD IN PLACE NOW. The changes making the stress test easier have been halted. The dramatic decrease in rates is on the verge of reversing course with variable rate discounts starting to evaporate, and fixed rates all over the map, with some lenders starting to increase.
- Well, friends, I think we can all agree that this is truly an unprecedented time in our history. We’re going to do everything we can do skip the drama, stick to what we know (mortgages) and stick to what’s relevant (how it affects you). Things are literally changing by the hour, so we’ll be working hard to bring you the latest, but probably every few days since we expect even between the time we wrote this and the time you read it, something else newsworthy will happen – and maybe big things. Overall, we’re urging our clients to stay calm, and to keep sight of the fact that lenders and policy makers are committed to reducing the impact this is all going to have on ordinary Canadians.
- This isn’t a shameless plug. If you are going to be buying in the next 4 months (not everybody has the option to delay a home purchase; and some folks don’t feel the need to) you need a rate hold literally yesterday. Both fixed and variable rates are increasingly volatile. A rate hold is FREE INSURANCE. If there is ANY chance you could be buying a property in the next 4 months, or your mortgage is coming up for renewal in the next 5 or so months, you should be talking to us right now! We can hold a rate for you NOW and capture a lower rate if/when it occurs. Don’t shop for a home without a pre-approval and rate hold, and don’t just sign your renewal offer from your lender! Thousands of dollars are on the line. Talk to us!
- The Bank of Canada cut its target for the overnight rate by another 50 basis points (0.50%) in a very rare unscheduled rate cut last Friday March 13th. A few days later, today (Sunday March 15th) the US Federal Reserve made a totally unprecedented move by lowering its target rate to 0.25%, with 0% right around the corner. We expect to see the Bank of Canada make another similar move very soon.
- In light of the volatility and in order not to add any more uncertainty or instability to an already very fluid situation, the Office of the Superintendent of Financial Institutions (OSFI) has suspended the upcoming changes to the mortgage stress test, previously scheduled to come into force of April 6th. While we are of course disappointed, it is one less thing the market is going to have to try to digest and figure out, and ultimately adapt to. It’s also very possible we see a spike in fixed mortgage rates, and the current stress test rate of 5.19% could end up being lower than whatever the new rules would have given us.
- As noted, the BoC cut its key rate to 0.75% fro 1.25%. The significance of this is huge – it made the cut outside of its normal 6 week policy-setting interval. We don’t even know yet how much of this 0.50% cut banks/lenders will pass on to borrowers. Then today, the US Federal Reserve not only matched the BoC they went another 50 basis points (0.50%) dropping their key rate to 0.25%, effectively 0%. There’s little doubt the Bank of Canada will have to follow suit so keep an eye out for another emergency cut pretty darn fast. We’ve also seen some lenders reverse course pretty quickly on the steep and dramatic rate cuts of just last week. The reason this can happen, even when the bond rate continues to fall (I may be wrong about this by the time you read this so don’t hold me to it!) is the perceived risk in credit lending and liquidity in money markets needs to be baked into fixed rate pricing too, not just the bond rate itself. So as mortgage investors (the actual money being loaned as mortgages) perceive increased risk (and bond rates falling through the floor is a pretty good indicator of major systemic economic risk) they will need to offset that risk by way of higher rates. We’re also seeing lenders cut their discount to prime rates. Last week, discounts for default insured mortgages were easily had in the range of Prime – 1.00% to Prime – 1.20%. Today, we’re seeing some banks cut that discount to Prime – 0.60% or even less. So perhaps that last 0.50% cut by the Bank of Canada will be passed on when the actual Prime rates are adjusted, but they’ll claw back some of that loss by reducing the discount to Prime. Only those who already have variable rate borrowing products (mortgages, car loans, personal loans) will effectively see any of the decrease, whatever portion actually gets passed on.
Undoubtedly there is more to come, and we’re sure for some of our readers this is going to be a lot to digest or to figure out exactly how this might apply in your situation.
We are here for all of your questions and encourage you to reach out any time by phone/text at 855-44-CLICK (855-442-5425) or email at firstname.lastname@example.org.