Daily Mortgage Update – April 8

variable rate discounts are improving
  • Variable Discounts Start Improving: This week, we reported that falling risk premiums are helping to lower costs for mortgage lenders. And it’s starting to pay off. In the last few days, we’ve seen various lenders start to drop 5-year fixed rates 10 bps or so, as well as cut variable rates (i.e., improve their discounts) by 10 to 20 bps. Let’s hope that’s a trend.
  • Discounts to Return Slowly: Don’t expect mortgage discounting to return with a vengeance. Fitch says banks “face profitability challenges due not only to an increase in [loan loss] provisioning, but also due to lower mortgage origination volumes from a frozen mortgage market.” When profits shrink, banks often try to make more money per mortgage. That can lead to smaller-than-normal discounts. And that may be the Big 6 banks’ playbook for the foreseeable future. This makes it all the more important to shop hard when you’re on the mortgage hunt.
  • Home Price Drop: If HouseSigma is in the ballpark, median GTA home prices are sliding hard in April. It estimates the median GTA home value is down to $740,000. That’s a 6% drop from the February peak of $789,000. Of course, these are just estimates and the data for April is volatile and incomplete. We’ll check HouseSigma numbers against official real estate board data in early May. Realtor quote of the day: “A couple of my sellers are nervous that things are going to get worse, so they’re taking what they can get.”
  • Approval Ratios Plummet: Even for mortgage applicants who still have a job, many lenders are declining them if they work in the travel, food and beverage, mining, oil, discretionary health services (e.g., therapists and chiropractors) and auto industries, among many others. A lender friend told me today about a top car salesman who got declined on a purchase. He made $100,000+ a year, had excellent credit, a good down payment and low debt ratios.
  • HELOC Risks: If you plan to rely on a HELOC, Rob Carrick outlines the risks. In all my years in the business, I’ve personally never seen a bank demand repayment of a HELOC or slash the credit limit for a borrower in good standing who’s paying as agreed. But it’s happened before. If you depend on a HELOC for emergencies and need peace of mind during this crisis, you can always borrow $25,000 (or pick a number that’s right for you) and deposit it in a high-yield savings account. Depending on the circumstances you might even be able to write off the interest — but talk to a financial advisor to confirm if that’s applicable and suitable for your situation.
  • 100% Chance of U.S. Recession: So says Bloomberg. A 100% probability shouldn’t exist…unless a country is actually in a recession.
  • So Much for the “V”: Big-bank CEOs are fading the idea of a “V-shaped” economic recovery. At least a short-term one. RBC CEO Dave McKay says we’d be lucky to get back to “80% or 90% of where we were” by early 2021. In a BNN interview, he reinforced that banks are being more conservative with financing decisions. “We’re not used to adjudicating loans and making credit decisions when there’s no revenue,” he says.
  • 0% Credit Card: Vancity is offering 0% interest to its credit card holders hurt by the COVID crisis. Earlier this week, banks offered to reduce credit card interest rates by 50%.
  • Investors’ Note: Today, we saw a big bank no longer allow borrowers to borrow their down payment off a HELOC if the property being financed is a non-owner-occupied rental property. Various other lenders will no doubt do the same.
  • Virtual Signing Nearing Mainstream: “Most lenders have [now] accommodated virtual signing, while some still insist on wet signatures and face-to-face meetings,” says Reuven Gorsht, co-founder & CEO of Deeded.ca. “Not all law firms are equipped for virtual signing and some are not equipped to work remotely. Most are sending papers for clients to sign while doing video or phone calls. Clients still (often) need access to a printer, scanner and couriers, which is challenging. ID verification is being done virtually.”


4 Comments

  • John the Great says:

    I am with Scotia, and have a Total Equity Plan. In the past, at renewal time they allowed to increase your mortgage and roll some of the HELOC into the mortgage. However this is no longer possible.

  • John the Great says:

    The current discount I can see from my bank for a 5 year variable is 0.04% for a rate of 2.41%. I would be interested to see the history of the average discount for variable mortgages. I see in the comments that some people managed to get 1% discount. When was that?

  • David64 says:

    @John
    Those discounts where before virus crisis. To say it better, you might get those before March 10 or 15.
    Now it is more like prime – 0.25% or so at best.

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