Fixed Rates Break the 2% Barrier Again

The Mortgage Report – May 20

  • 1″-handle Rates Return: Fixed rates have once again dipped below the psychological 2% level, albeit only three-year fixed rates. It’s a threshold that, when broken, often creates incremental demand for mortgages. Normally that demand comes from refinances and purchases, but with home sales down 57% nationwide, purchases have largely dried up. Credit tightening, a lack of major lenders below 2% and a stubbornly high 5.04% qualification rate will also ensure that any mortgage boost is modest.
    • Here’s what you can find under 2% right now:
      • 1.99% three-year fixed rates
        • Available via a handful of brokers on insured mortgages and on insurable mortgages up to 65% LTV
      • 1.95% or less variable rates
        • Available via brokers, banks and credit unions on insured mortgages and on insurable mortgages up to 65% LTV
  • Less Stress: The minimum “stress test” rate is officially dropping to 4.94%. That’ll make it slightly easier to qualify for a mortgage if your debt ratios are near the allowable limits. The new stress test rate takes effect Monday, May 25 for default-insured mortgages. For uninsured mortgages, “Lenders are free to use the updated figure as soon as it is published,” says banking regulator OSFI. (It’s now published.) “However, for operational reasons, lenders may opt to update their systems on Monday to align the effective date for the insured space.”
  • RBC on Higher Down Payments: In follow-up to Evan Siddall’s comments yesterday and speculation about minimum down payments rising, RBC said: “CMHC acts as an adviser to the DoF and in our opinion, Mr. Siddall’s views are respected within Ottawa. As a result, we think there is a reasonable chance that higher minimum down payments may happen, but if it does, the magnitude and timing are unclear, especially since any change might further weaken the economy or at the very least is likely to prolong a recovery in housing market activity…”
  • Monitoring Deferrals on Credit Reports: Free credit score provider Borrowell has a new feature for people who’ve deferred their mortgage payments. It tells you if your mortgage lender is improperly reporting deferred payments as delinquent to the credit bureau Equifax. “Late payments typically account for 35% of credit scoring models,” Borrowell says. And—as we know too well—creditors make mistakes on credit reports, so it’s not a bad feature. Details…
  • Computing Penalties: Here’s an updated list of mortgage penalty calculators from popular lenders.
  • Prolonged Recovery: Fed Chair Jerome Powell worried people on Sunday when he said the recovery could “stretch through the end of next year.” And today we learned that the Fed projects a material chance of a second wave of the coronavirus late this year. Rate Impact: Potentially Bearish
  • Oil Rally: Oil prices are the highest they’ve been in over two months. WTI spot crude is now $71 above its all-time low of -$37.63 (yep, that’s a minus sign), which was set just one month ago. Rate Impact: Bullish
  • Deflated Inflation: Prices for many items (particularly clothing and transportation) sank in April. Yet, an average of the core inflation measures preferred by the Bank of Canada showed little change (down just 0.03%) because of how they’re calculated. For the time being, rising oil prices could further stem inflation’s slide. Rate Impact: Neutral



20 Comments

  • dman says:

    Any thoughts on which is better, a 1.99% 3 year fixed or 2.14% 5 year fixed?

  • It’s hard to tell what’s happening given the long lag between payments and bureau updates on Equifax. I’ve looked at 6 mortgages with TD, Scotia, and BMO, and Borrowell shows no updates since March. TU(via CreditKarma) is showing two May 15 updates from Scotia with last payment dates of April 15. The other four mortgages (TD & BMO) have reported dates of April 1 and last payment dates of March 1.

  • Alex says:

    Hello Spy,
    In Siddall’s comments, I didn’t yet understand why a 10% down payment offers more of a cushion against possible losses, than a 5% down payment. Could you clarify? Thanks in advance.

  • Yacoob Bayat says:

    Could someone please pinch me to let me know if I am having a bad nightmare or am I really hearing what I think I am.

    This Sidall fellow wants to prevent a drop in house prices……….

    So, should we be making it easier for all Canadians to be able to afford a home of their own ???

    Or should we be making it more difficult ???

    I am really confused.

    Maybe, I should not be.

    Once any Canadian has managed to buy a house, his true selfishness rears its ugly head and he starts to actively advocate every possible rule change to make it virtually impossible to let anyone else buy a home.

    What an unholy mess we live in…..
    It’s time to look in the mirror and see your true self
    Just like alcoholics anonymous….to start to heal you have to first acknowledge that you are a drunk.

    Likewise to start to heal ….. look in the mirror and acknowledge that you are SELFISH to the 10th degree and only then can you start to heal

  • When doing a credit score would my student loan, on repayment, be considered? My last NSLSC payment was in March 2020. They allowed me to start payments by Oct 2020. I placed a deposit on a home which will be built from scatch. Move in would be April 2021. Currently I am looking for a bank to get me a mortgage.

    • The Spy says:

      Hi Beth, Yes. The timeliness of your student loan repayments are part of your payment history, which helps determine your credit score.

  • Vas Anton says:

    Alex, all mortgages with less than a 20% original down payment are insured, thus CMHC is on the hook, not the bank, if there any losses.

    Evan Siddall’s cushion against losses comment is meant for the institution he is heading, the CMHC, not for the consumer. With a 10% down payment, CMHC has an extra 5% to “play” with.

  • Raincity says:

    While is nice to pretend everyone will be able to afford a house in reality they cannot. While we should strive to help people in their endeavor we also need to protect them. As far as I am concerned if you can only put 5% down you absolutely cannot afford the place in most cases. Same with the stress test. It sucks that I it prevents some people from getting into the market but those people also would have been getting into very dangerous high risk deal which is bad for them but also bad for all of us. Enough people that have overbought and we are all in a dangerous spot even those who did nothing wrong. So while people should be doing their own stress tested many don’t and will take any amount the bank will lend them but the bank isn’t you friend.

  • Marko says:

    House prices are headed lower and are currently far over-priced relative to income. Wake up clueless home buuyers and rent you silly fools.
    Taxpayers back CMHC and we should not be on the hook for your speculation. Keep saving and quit buying!

  • Leon says:

    Overpriced where? There is a huge regional gradient in Canada. Why pay rent when you can get mortgage with similar or lower monthly payment?

  • jim says:

    Dman

    I’m facing the same decision and am leaning towards the 1.99% 3Y fixed. In three years hopefully we can renew into a variable at prime – 1% or better. In that case we’d still be ahead even if rates go up 3 or 4 times.

    • The Spy says:

      Hey Jim, A growing minority of borrowers are taking the same tack right now (i.e., lock in for 1-3 years and hope to renew/refi into a prime – 1% variable).

      Of course, anyone with less ability to handle rate fluctuations can’t go too wrong in a 2.19% or less 5yr fixed, assuming it’s a fair-penalty lender. The fixed-variable spread is super narrow and you can’t rely on negative rates — even though they’re a possibility.

  • Hjjj says:

    The only reason for an interest rate cut is because housing prices are high (not affordable).

  • The Rock says:

    Not seeing these rates 1.99 or less. Where are they or how do I get them?

  • Jeff says:

    https://www.ratespy.com/

    I see 3 rates under 2%

  • Karen says:

    Anyone know the best rates for a refinance 5 year closed. Good jobs and great credit score so that’s not an issue. Just looking for decent rates. I have been offered 2.59 and told no more room to go lower. I know a refinance is more than a renewal or a purchase. Thanks

  • Jay says:

    I have 3 years left on my fixed mortgage at 3.09%. Current amount remaining is $283,000. If I were to break this mortgage, the penalty is three months interest, so about $2,300.

    Would there be value in breaking my current mortgage and entering into a variable 5 year at 2.20%? What about a fixed 5 year at 2.49%? Is either one the better option?

    The variable always looks good unless rates start edging up by the end of the year…. Thank, Jay

    • The Spy says:

      Hi Jay, This isn’t advice so consult a licensed mortgage advisor. That said, someone in a similar circumstance would likely be ahead over a 3-year timeframe by breaking the 3.09% fixed mortgage with $2300 penalty and refinancing into a 2.20% rate. That’s based on interest cost *alone* — factoring in no other considerations. It’s true even if the BoC hiked rates four times in a row starting September 2021 (which follows their Global Financial Crisis playbook plus an extra rate hike, not that we can rely on that). Note: There may be better options than a 2.20% variable if you compare different terms.

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