Fixed or Variable? To Be Determined …

Improving Your Credit

The Bank of Canada (BoC) and the U.S Federal Reserve have both slashed interest rates in the wake of the economic disruption caused by the COVID-19 crisis. These actions have altered the trade offs of fixed- versus variable-rate mortgages. Variable mortgage rates should begin falling, but it isn’t clear how much of the BoC’s cuts will be passed on from lenders. Government of Canada bond yields should also decline, but it it’s uncertain whether fixed mortgage rates will drop along with them. Given how fluid and fast-changing the situation is, it is too soon to tell.

Key Takeaways:

  • Over the past seven days the spread of COVID-19 has intensified, and huge swaths of the global economy have now ground to a halt.
  • The BoC’s dramatic moves will likely cause a complete recalibration of the demand for Canadian mortgages.
  • The current situation is so fluid and fast-moving that any rate-based simulations could be out of date very quickly.

“While all of this was unfolding, oil prices fell through the floor, stock markets plunged further, and economists lined up their recession forecasts.”

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