Interest Rates Falling Like Rocks!

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No other way to say it, really. The last few weeks, and the last few days in particular, spell very good news for Canadian borrowers and home buyers!

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Bank of Canada Rate Announcement

Today the Bank of Canada announced a 50 basis point or 0.50% reduction in its target for the overnight rate to 1.25%. This rate directly impacts bank Prime rates, which are used to set variable rate loans such as mortgages and car loans. It is customary (but not guaranteed) that all banks and lending institutions will follow suit and cut their Prime rates by 0.50%.

In its announcement, the bank cited economic slowdown related to the COVID-19 outbreak as its main reason for the cut. The US Federal Reserve yesterday made an emergency rate cut of the same 0.50%, also listing Coronavirus as the prime suspect in weaker economic activity.

These announcements, coupled with the potential of oncoming global recession, could be a reason to start discussing a variable interest rate.

Fixed Rates Also Dropping

Related directly to government of Canada bond yields, fixed rates are also expected to drop further. The bond rate has only ever been this low ONCE before in modern history (since 1995), also within the last 5 years.

A closer look and a little back-of-the-napkin comparison to my own (Andrew) mortgage in July 2017 at 2.49% (5 yr fixed closed, full privileges) shows the bond rate was much higher, about a full 100 basis points or 1%, back then, and the mortgage rate I got (2.49%) is lower than the average, run of the mill, widely available 5 year fixed rate of today. Expect that to change, probably in a matter of days!

Stress Test Looking Pretty Relaxed These Days…

It means now is a stellar time to do pretty much anything mortgage related. Buy a house, refinance, you name it. Be wary – don’t try to catch the falling knife. No matter what you’ll snag a good rate. If you should miss out on 0.1% or 0.2% because of timing, don’t beat yourself up. Take comfort in the fact that anything under 3% (and we’re gonna see under 2.5% again soon!) is historically INSANELY. CHEAP. MONEY! Not only that, but with rates falling faster than a drunk on a mountain bike, the Stress Test rate is starting to look like it will land somewhere in the 4.5% range.

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