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Spring 2020 update on Variable Rate Trends

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During the start of the lockdown due to the COVID crisis, banks hiked their variable rates discounts to prime – 0%.

At the time, we predicted that variable-rate discounts will improve significantly once again.

Well, very slowly now, we are starting to see this happen.

The lowest nationally available variable rate in Canada is prime – 0.60% (insured mortgages only). We anticipate that we will ultimately get back to prime – 1%, but it may take a while…..

We have started to also see cuts to some of the big banks fixed rates for 3, 4 and 5 year terms, in an effort to be more in line with the market.

Banks also (finally) seem willing to drop 5-year posted rates again. For instance, TD just lowered theirs to 4.84%. If two more large banks match, it could potentially ease the mortgage stress test another 10 bps.

For what it’s worth, on an RPS panel TD economist Derek Burelton said TD Economics expects rates at or near 0% until at least 2022.

RBC’s Robert Hogue says it will be well into 2022 before the economy is back to “where we were” (pre pandemic). He predicts that home prices will come under pressure in the fall.

CIBC’s Benjamin Tal adds that unemployment won’t go back to normal for years. Tal forecasts taht “we will be recovering into recessionary territory (of ~8%+ unemployment),”

Concordia University professor of economics Moshe Lander, told the Financial Post: “The Bank [of Canada] is worried about pushing below its effective lower bound. I think it should be unconventional in these unconventional times and try a 10 bps decrease and see what happens.”

If the BoC took his advice and banks also cut prime by 10 bps, it would be the smallest reduction in prime rate ever.

This also means that rates are improving for credit-challenged borrowers, those with high debt ratios and those who can’t prove their income in a traditional manner.
An example: One-year terms for self-employed borrowers with high debt ratios (above the 44% TDS limit) and more challenging income validation. Rates for these types of borrowers are down down roughly 30 bps in recent weeks.
    • Specialist Tip: If you are shopping for a non-prime mortgage at a federally regulated lender, plan for a 1% lender fee as well. That’s the cost of doing business with a more risk-tolerant lender. Many refer to it as “the cost to self insure your mortgage”.

 

Consumer confidence has fallen to four standard deviations (SD) below its 2000-2019 average,” as noted by Capital Economics. Historically, consumer confidence and home prices often have an intimate relationship.

Vancouver prices seem to be holding up. The city’s benchmark home price was down just 0.7% versus April, amid sales that were 54.4% below the 10-year May sales average.

  • CMHC’s Underwriting in Review: CMHC’s CEO recently hinted at tightening qualification criteria on default-insured mortgages. Where does that stand? “We are currently reviewing our underwriting practices,” say CMHC. “If and when a decision is made and we have something to announce, we will do so directly.” CIBC economist Ben Tal says, “I will not be surprised…if [the minimum] down payment on insured will go to 10%.”
  • New Multi-Unit Loan Restriction: Effective May 28, 2020, CMHC is prohibiting refinances on 5+ unit properties if the funds are an equity take-out or are used to make distributions to equity holders. CMHC says its multi-unit mortgage loan insurance products could see additional “product repositioning” over the next few months. No details on what that might entail, but the housing agency says it will consult with industry before making any changes.
  • Quotable: “We think mortgage deferrals are obscuring underlying consumer credit quality…”—RBC Capital Markets. (The Big banks have deferred $180 billion in mortgages during the COVID crisis.)
Mortgage Penalties In the Media Again
 

A self-employed, single mother of a 12 year old boy, also taking care of her elderly mother, made CBC headlines for having to pay a $30,000 early termination penalty on her mortgage, when she was forced to sell her house in April, due to the COVID-19 pandemic.

Daily Corona Virus Mortgage Updates
 

Canada’s lowest nationally available conventional variable rate is just nine basis points cheaper than a comparable 5-year fixed rate. That minuscule “fixed-variable” spread is now 80% narrower than its 10-year average. The market is no longer compensating new borrowers for the risk of a floating-rate mortgage.

 

CMHC Rule Changes
 

Traditionally – if the waters are rough, you do whatever you can to not rock the boat. CMHC today however has rocked the boat. The housing market has weakened over the last few months, due to the pandemic, but Canada’s largest default insurer is making it tougher for people to get a mortgage…

How to Get Financing during the COVID Pandemic
 

Most of you are going to be very angry at this post because it may seem like I am actually encouraging people to get out there and buy properties.As a matter of fact, anyone who calls me asking for financing options, the first question I ask them is: “Are you really going to be buying a property in the next 3 months?”

 

Variable Rate Update
 

During the start of the lockdown due to the COVID crisis, banks hiked their variable rates discounts to prime – 0%. At the time, we predicted that variable-rate discounts will improve significantly once again. Well, very slowly now, we are starting to see this happen.

Coronavirus related to your mortgage
 

Believe it or not, the coronavirus can have an impact on your mortgage and your interest rate in particular. Listen below to find out exactly how and why.

 

The Recent Bank of Canada Rate Increase- one broker’s thoughts
 

What about this recent Bank of Canada Interest Rate Increase? If your discount from Prime -which is now now 3.20%- is 0.50% or deeper – then the variable rate product remains a really great place to be. If your discount from Prime is 0.25% or less, then depending on which lender you are with you may consider…

Employment status Impacting Your Mortgage Qualification
 

If you are applying for a mortgage, the chances are that you are feeling confident about your current employment status and your ability to find a similar position if need be. Your employment is a key aspect of being approved for a mortgage…

 

The Truth about mortgage pre-approvals
 

Are we Pre-Approved? Not what you might think it means… Many clients think that having a mortgage pre approval puts them in a position to write offers on properties without inserting a ‘subject to receiving and approving financing’ clause in their contract.

April Real Estate Board of Greater Vancouver News
 

Here is a Quick Summary of the April stats for Real Estate In Greater Vancouver.

 

If you would like more information or a free consultation contact Aleem below, and as a Certified Mortgage Specialist let me help you get the home of your dreams. Great Mortgages, Made Simple
Aleem Peermohamed - Mortgage Broker BC


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