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Look Out Below. The Latest from the Rate Collapse

Five quick bulletins from the mortgage market:

1.  Canada’s 5-year swap, which guides fixed mortgage rates, is on track for one of its biggest down days in history.

record low in Canada's 5-year swap rate

Driving this carnage is the biggest oil rout since the 1991 Gulf War. JP Morgan says, “The oil and gas sector represents about 6% of [Canada’s] GDP but we expect the hit to economic activity will be larger as the negative impact on the energy sector will reverberate to business and consumer sentiment more generally” (Source: Bloomberg News).

2.  No big cuts from major banks today. We heard rumours of some coming, but nothing to report yet. “Lenders are worried about a sudden V-shape recovery in bond yields,” True North Mortgage founder Dan Eisner says. A few smaller lenders have trimmed rates and the lowest 5-year fixed is now down to 2.07% (in Ontario, higher elsewhere). The record low for effective 5-year fixed rates is 1.91%. We’ll get there unless panic causes a spike in credit risk/liquidity premiums.

markets falling on coronavirus fears3.  Based on the prices of bond market derivatives, traders expect the Bank of Canada to cut 75-100 basis points by year-end. Capital Economics says: “On top of the rapidly spreading coronavirus outbreak, the slump in oil prices raises the risk of recession this year and suggests that the Bank of Canada will slash its policy rate to just 0.25%.” It now expects two back-to-back 50-bps rate cuts from the BoC. Dozens of economists will be joining Capital Economics, throwing in the towel and slashing their rate forecasts to zero/near-zero this week.

4.  A 0.25% overnight rate would likely pull down prime rate by 60-100 basis points from today’s 3.45%. Rates on most existing variable-rate mortgages would fall in line with prime rate. Rates on new variables may not fall in lockstep with prime if banks pull back on their discounts from prime rate — a possibility as we approach zero on the overnight rate.

5.  The lowest mortgage rate in Canada remains HSBC’s 1.99% 3-year fixed, but it’s only available for default-insured purchases. The lowest uninsured rate is Tangerine’s 2.19% 3-year fixed. Rate leaders will change in the coming days. If you don’t want to check the site multiple times a day, set up a mortgage rate alert.

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  • Katie says:

    This seems like a great time to be looking for a mortgage! How long to you think before we see rates fall under 2.00%?

    • The Spy says:

      Hi Katie, HSBC is already there with its 1.99% three-year fixed for insured purchases.

      As for five-year terms, they could *potentially* go sub-2% in the next 3-10 days for insured mortgages. For uninsured loans it might take longer. Very hard to say just yet.

  • Myuran says:

    Now I’m thinking what it would cost to break my TD 5 year 3.44 fixed, nearly 4 more years to go. Worth exploring?

  • Kent says:

    Would now be an appropriate time to renew with a variable rate mortgage? What is the typical procedure to convert to a fixed rate down the road?

  • Hari says:

    My new build in Ontario is closing late November. The earliest I can lock in will be end July (120 days), that’s still 4 months out. Based on where we are now, do you think uninsured fixed rates (30 yr amort) will be in the same range as today, ie 2.5% or higher or lower?

  • Ken says:

    Kent, I don’t know if “now” is the time to renew with a variable (could be close), but I do know that converting to a fixed rate from var down the road is very easy – just make an appt and lock it in.

    The trick is to catch the fixed rate when it is still low before it starts following the prime rate up. A few years back I had a variable that started to climb and my rate went to 2.4%. I checked with a TD mortgage broker and TD had 5-year fixed at 2.39%! I was able to move quickly and got locked in but I had to work the branch manager to ensure I got it (they were not advertising that 2.39 rate).

    I believe Rate Spy had an article on this a couple/few years back regarding what metric to follow catch that sweet spot. Hope that helps!

  • Jon says:

    Hi. I am up for renewal first week of April. My current bank (Scotia) is giving me 2.42 (5 yr fixed) and 2.4 (3 yr fixed). Every week they call me and the rates keep dropping. Wonder when is the right time to lock it in and how much lower will they give? Thoughts?

  • Dan says:

    Great article. I have a mortgage with Scotiabank they are currently offering me 2.34% on a five year renewal (fixed). I have two questions I am unclear about:

    1) When you renew your mortgage does that become your new renewal date? (e.g., my mortgage renewal is due by August 5th but if I renew today does today become my new renewal date?)

    2) Should I wait until April or even later as it sounds like bigger cuts are coming? When would waiting become risky?


  • Jim says:

    1) 5 years after your present maturity date

    2) rates are probably not going up soon. I see no problem with waiting until 30 days before you close.

  • Matt says:

    I’m considering borrowing money from a broker, which gets loan from various financial institutions in Canada, some are smaller lending institutions. What would happen to the mortgage (say a 5 years fixed) if the lender becomes default during the mortgage term?

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