The Most Asked Question
Hundreds of thousands of Canadians are asking the banks for a deferral on mortgage payments while others are looking to take advantage of the Bank Of Canada’s three half point emergency rate cuts since March 4th and are asking about extending their existing mortgage or getting a new one.
The big question is whether it’s better to take a variable rate or fixed term.
Before answering consider that all the pressure on mortgage rates is up. That’s why despite the fall in bond market yields, the 5 year fixed term is up. And despite the three half point emergency rate cuts and the accompanying drop in prime rate – new variable rate borrowers haven’t had the full advantage because the formula for establishing the rate has changed with the elimination of the “prime minus” provisions.
At the same time, the 5 year fixed mortgage rates haven’t reflected the full drop in the 5 year bond yields. In fact, recently 5 year fixed rates have been drifting upwards while the bond yields dropped.
It’s a reminder that the Bank of Canada can lower the bank rate and the yields of 5 year and 10 year bonds can fall but that doesn’t guarantee the mortgage rates will fall accordingly.
So back to the question – should someone take out a variable rate or lock in for 5 years – there are a great many individual factors that influence the decision but borrowers should know that all the risks point to higher rates. The bank rate is at .25% – how much lower can it go? To zero? Negative? My point is that the risk on the upside is much higher. Just like bond rates went down so dramatically in the last 6 weeks – they can go up just as fast if confidence in government erodes.
My approach is that people should know the risk they’re taking before they decide. And if they’re comfortable forecasting interest rates there are many other ways to play it besides with their home.
Government assistance to support you during the COVID-19 pandemic
These unprecedented times has left millions of Canadians struggling to cope financially as non-essential businesses are forced to close. Managing your finances has become more important than ever not knowing when you will be able to provide a steady income for yourself. If you are faced with financial struggles with your everyday expenses, it’s important to be proactive to look for options in assistance benefits, payment deferrals and appropriate loans.
The Government of Canada and many businesses has offered assistance to Canadians to help overcome their financial difficulties at this time. To see which assistance program you are qualified for, check out this summary from CTV which outlines support programs for each province: https://www.ctvnews.ca/health/coronavirus/interactive-which-benefits-am-i-eligible-for-during-the-covid-19-pandemic-1.4901012
Have mortgage questions? I’m here to help you!
Please feel free to contact me with any questions you may have. It would be a pleasure to assist you or any one of your friends or family members!