Coronavirus Mortgage Update – March 21

Weekend Bulletins

  • Approvals Revoked: We’re seeing and hearing from multiple customers and mortgage brokers that approvals are being overturned by lenders due to coronavirus layoffs. One of them just made the news. It’s essential to remember that most mortgage approvals are based on continued employment. If you’re facing a potential layoff, and your lender finds out (don’t bet they won’t), your completed approval could be voided. If you can’t get financing in time to close an unconditional home purchase, you could lose your deposit and potentially be liable for the seller’s losses. Remember that if you’re out there buying in this market. There’s no question that home purchases will start falling through for this very reason.
  • Payment Deferrals: Here are links to the mortgage payment deferral announcements from top lenders.
  • Another Bank Hikes: Scotiabank lifted its internal discounted rates today, according to its eHOME website. All terms went up, some by over 1/4 point. Here’s the latest big bank rate summary.
  • When’s the End?: Everyone wants to know when this surprise mortgage rate uptrend will end. It could be a while. Economic crises can push mortgage rates higher due to constraints on lenders’ liquidity and elevated credit risk, among other things. In the 2008 experience, rate premiums faded after eight months, getting back near normal when the recession ended. After the 2020 recession peaks (note: we’re not officially in a recession but we’ll assume we will be, like everyone else), rates should slowly drift lower. Two exceptions are the following:
    (A) if investors get concerned about the government’s ability to repay bondholders (due to all the debt Canada’s taking on and its deteriorating fiscal picture), and/or
    (B) if we get an unexpected spike in inflation (i.e., if the plunging loonie and/or goods shortages offset the massive drop in demand).
    Both such events could potentially drive up interest rates. Mind you, these are both low probability events. If they did occur, they’d last for a while but not forever.

Jargon Buster: Banks use interest rate swaps to hedge 5-year fixed mortgage rates. Swap rates can therefore be thought of as a very rough approximation of a bank’s base cost to fund a 5-year fixed mortgage.

  • Floating Rate Alert: You’ll still find a few prime – 1.00% variable rates out there but they’re going fast. We’re down to just two lenders in the broker channel with 1.95% variables.
  • Broker Frustration: The timing couldn’t be worse. With rates shooting higher, the mortgage brokerage industry’s most-used application submission software (Expert) is still down. Thousands of brokers are unable to submit to lenders despite record/near-record application volumes.
  • Rate Mirages: Friendly reminder: If you see a rate and it’s not available when you apply, it’s likely not because someone is trying to cheat you. It’s probably because rates are moving so fast that it’s hard for lenders, brokers and rate aggregators to keep you up to date!


20 Comments

  • Jim W says:

    Any idea when MCAP will drop their bank prime? Been 6 days now since the last drop, not a peep out of them yet…

  • Betty says:

    Im a first home buyer from Winnipeg. Is it the right time to buy.

  • Tom says:

    There was 2 rate drops from the bank of Canada already and my variable First National mortgage didn’t drop at all.
    I’m sure if it would be an increase it would happen by next day.

  • Jeremy says:

    Tom. Payment amount does not change until your existing term matures. What happens it that more if you payment is allocated to principal repayment and less to interest. This means your are paying your mortgage off faster.

  • Tom says:

    Jeremy that makes no sense.
    My mortgage #1 was 2.71%. when bank of Canada dropped rate by .5% my 2.71 dropped to 2.21

    My mortgage #2 2.85% did not drop even tho bank of Canada dropped by not only .5 but .5 times twice.

    MCAP #1

    First National # 2

  • Reuben says:

    First National has dropped the full 1% on their prime rate. It takes effect on April 1st.

  • Tom says:

    Reuben
    Thx for the update

  • John says:

    With 500,000 applying for EI and many more out of a job, there has to be an increase in homes hitting the market. After chatting with a few agents, they don’t seem to realize how many businesses will close and jobs be lost.

  • RayJ says:

    @Tom, @Jeremy,

    Don’t forget guys – some variable rate mortgages have fixed payments (vrm), even as bank prime fluctuates. In this case, the balance of interest and principal inversely adjust. But, there are also adjustable mortgages (arm), where payments DO fluctuate with bank prime. It pays to know what type you have (scotiabank, for instance offers you the choice of both types).

  • Anxious & Confused says:

    Given everything rapidly occuring, and all things being equal… bottom line… if you were renewing your mortgage right now, today, and still have these options available to you… what would you choose over a 5 year term?

    A.) Fixed @ 2.29% OR
    B.) Variable @ Prime – 1.1%

  • Ol'logger says:

    Ask yourself what would cause variable rates to average 0.5% higher than they are today? If you can’t come up with a good answer and have sufficient savings, lean variable.

  • Hithen says:

    Is it best to switch to a fixed mortgage given current situation and interest rates? I’m with 5 years prime -.85 variable rate and 30 more months to go. What’s best with forecast?

  • Ani says:

    @The Spy: any news for RFA…when are they dropping rates?

    • The Spy says:

      Hi Ani, Do you mean RFA’s prime rate? It’s currently 3.45% and I suspect it’ll drop to 2.95% in April.
      If you mean rates other than prime, your guess is as good as mine. The trend is currently up.

  • Mannan says:

    My mortgage is approved. Notary is 7 April 2020. Right now I don’t want to buy the house because I’m scared right now. No job. Been laid off. Can I cancel the mortgage? Please tell me. Thank u

    • The Spy says:

      Hi Mannan,
      Very sorry to hear about your job. Hopefully the layoff ends soon.
      An applicant is generally not bound to close a mortgage until they’ve completed the signing process with a lawyer.
      Unconditional purchase agreements are generally iron-clad, however, and usually cannot be cancelled.
      That said, we can’t advise you on legal matters unfortunately. Please consult your lawyer for proper advice pertaining to your case.
      Wishing you the best.

  • Ani says:

    @The Spy, yes I meant Prime Rate. I currently have variable rate with them, and waiting for prime to drop. RFA still need to respond after BoC’s 2nd rate drop…

  • Michelle says:

    My mortgage matures on April 1st! Worst timing ever. TD is offering the following renewal rates:

    5 YR Fixed – 3.07%
    5 YR Variable – 2.53% (prime – 0.07%)

    What to do?? (my current rate is 2.74%)

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