The Bank of Canada Cuts Again and Policy Makers Get Creative

Monday Morning Interest Rate Update for March 30, 2020

by David Larock

Canada mortgage ratesLast week our economy slowed to nearly a halt as self-quarantined Canadians hunkered down to wait out the COVID-19 threat.

Our policy makers have taken unprecedented steps to try to slow our infection rate to a level that our health-care system can cope with, a concept now commonly referred to as flattening the curve. At the same time, they are trying to minimize the economic trauma inflicted by the virus by introducing a broad range of fiscal and monetary policy actions on an unprecedented scale.

As extraordinary as these measures are, they seem entirely appropriate for an economy coping with both COVID-19 and a barrel of Western Canadian Select oil priced at $6.10 (when I last checked).

In today’s post I’ll detail how Canadian monetary policy entered a new phase last week and offer my take on the implications for our fixed and variable mortgage rates going forward.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Mortgage Strategies for the Coronavirus Crisis

Monday Morning Interest Rate Update for March 23, 2020

by David Larock

The COVID-19 crisis added more tumult to the Canadian mortgage market last week.Canada mortgage rates

Lenders raised both their fixed and variable mortgage rates, to the surprise of many borrowers.

Here are the main reasons why:

  • Government of Canada (GoC) bond yields, which our fixed mortgage rates are priced on, have moved higher. For example, the five-year GoC bond yield opened last week at 0.49% before surging to 0.93% by Wednesday afternoon. That fact alone explains why five-year fixed rates moved higher.
  • Lenders are adding premiums to their mortgage rates to respond to either the reality or the threat of increased funding costs. This explains why variable-rate discounts are shrinking.
  • Borrowers have been calling their lenders in droves to inquire about mortgage relief. (Please read my post about Deferred Mortgage Payment programs before contacting your lender.) Concerns about spiking arrears and default rates are tempering lender appetites for new business.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

10 Key Points About Deferred Mortgage Payment Programs #COVID-19

by David Larock

Want to learn more about deferred mortgage payment programs? Here are ten key points to know:

  1. They are discretionary.Deferred mortgage payments

Lenders maintain the legal right to timely repayment of their mortgages. Mortgage payment deferral programs are offered at their sole discretion.

  1. No lender is going to forgive your mortgage payment.

A deferred payment program allows you to roll a defined number of mortgage payments into your mortgage. You still pay all of the money you owe, with interest. Just more slowly.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Fixed or Variable? To Be Determined …

Monday Morning Interest Rate Update for March 16, 2020

by David Larock

Canada mortgage rates

In last week’s post, I reported on the first policy-rate cut by the Bank of Canada (BoC) in more than four years and alluded to breaking news that Saudi Arabia was about to start an oil-price war in retaliation for Russia’s refusal to match OPEC’s proposed production targets. (Although not widely acknowledged, the oil-price collapse that followed will likely do more long-term harm to the Canadian economy than the COVID-19 virus.)

It’s hard to believe that only a week has passed since then.

Over the past seven days the spread of COVID-19 has intensified, and huge swaths of the global economy have now ground to a halt.

U.S. President Trump announced sweeping travel restrictions from Europe, and many other countries have invoked similar measures against any and all COVID-19 hotspots. Lockdowns are increasingly widespread, schools have been closed, professional sports seasons have been cancelled, and life as we knew it has effectively been put on hold.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

The Bank of Canada Finally Cuts and Mortgage Rates Plummet

Monday Morning Interest Rate Update for March 9, 2020

by David Larock

Canada mortgage ratesFinancial markets are driven by two competing forces: fear and greed.

Last week, greed left town and fear took centre stage as concerns about the scope of the coronavirus economic impact and the resiliency of the global economy intensified.

Stock markets, bond yields and mortgage rates plummeted to a degree not seen since the Great Recession. Back then, drops of this magnitude unfolded over many weeks. This time it took only one.

In today’s post I will describe the crazy week that was and offer my take on the implications for both our fixed and variable mortgage rates going forward.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

How Much Longer Will the Bank of Canada Stand Pat?

Monday Morning Interest Rate Update for March 2, 2020

by David Larock

Canada mortgage ratesThere is a growing consensus that the Bank of Canada (BoC) will finally cut its policy rate when it meets this Wednesday. This would be welcome news to variable-rate mortgage borrowers, whose rates are priced on the BoC’s policy rate.

A BoC rate cut might push our fixed mortgage rates lower as well. (Fixed mortgage rates are priced on Government of Canada bond yields which, although not directly linked to BoC’s policy rate, often move in sympathy with BoC rate changes.)

Let’s start with a look at the factors that may finally push the BoC into rate-cut mode:

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

How Last Week’s Mortgage Stress-Test Change Will Impact Borrowers

Monday Morning Interest Rate Update for February 24, 2020

by David Larock

Canada mortgage rates

Last week our federal government announced that on April 6, 2020 it will change the way the Bank of Canada (BoC) calculates the stress-test rate that lenders use to qualify all insured mortgage applications.

In today’s post I will explain what changed and offer five key observations relating to it.

First, a quick refresher:

  • The term “insured mortgage” refers to any mortgage where either the borrower or the lender pays for mortgage-default insurance.
  • Borrowers who are purchasing a property with a down payment of less than 20% must purchase mortgage-default insurance. When the down payment is 20% or more, the borrower and/or the lender has the option of purchasing default insurance (to lower the interest rate).
  • Today if a borrower applies for an insured mortgage that comes with a rate of 2.69%, they must qualify using the current stress-test rate of 5.19%.
  • Last week’s announcement applies to only insured mortgages. Thus far, there has been no formal announcement about changes to the stress-test rate used for uninsured mortgages, although that is expected soon (more on that below).

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Mortgage Basics: Term vs. Amortization

by David Larock

If you are among the many mortgage borrowers who isn’t clear on the difference between mortgage term and mortgage amortization, here is a simple explanation to help clarify.

Mortgage Term – When you secure a mortgage with a lender, you sign a contract that will remain in effect for a specific period of time. This is referred to as your mortgage term.

In Canada, the most common mortgage term is for five years.

Example: If you sign up for a five-year fixed-rate mortgage at 3%, that means that your interest rate will be locked in at 3% for a term of five years. When that term ends, you then renew your mortgage (and term) based on the best options available in the market at that time.

Mortgage Amortization – Your mortgage amortization period refers to the amount of time it will take to pay your mortgage in full. (Simply put, “to amortize” means “to pay off”.)

In Canada, the most common amortization period is twenty-five years.

Example: If you borrow $300,000 at a five-year fixed-rate of 3% and amortize this loan over twenty-five years, your monthly mortgage payment would be $1,420. By comparison, if you instead decided to amortize that same $300,000 over thirty years, your monthly payment would drop to $1,262. (The thirty-year amortization comes with a lower monthly payment because you are taking an additional five years to repay the loan.)

TIP: If you would like to learn more about the impact that different amortization periods have on both your mortgage payment and borrowing cost over time, check out my mortgage payment calculator.

David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Happy Family Day Long Weekend

Monday Morning Interest Rate Update for February 18, 2020

by David Larock

I hope that everyone enjoyed the Family Day long weekend. I used the holiday yesterday for its stated purpose, so today’s Monday Morning Interest Rate Update will be short and sweet.

Competition for mortgage business is intensifying as lenders prepare for the spring market. While many consumers focus solely on rates, the terms and conditions in their mortgage contract can also have a surprisingly significant impact on their overall borrowing cost.

For a recent and detailed example of why I say that, check out my recent post, which explains How Savvy Canadians Are Saving Thousands on Their Mortgages.

David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Is the Mortgage Stress-Test Rate About to Drop?

Monday Morning Interest Rate Update for February 10, 2020

by David Larock

Canada mortgage ratesLast week TD Bank lowered its posted five-year fixed rate from 5.34% to 4.99%.

You might be wondering why this is worth writing about because the Big Six banks don’t actually lend at their posted rates. Instead, those rates have primarily been used to significantly inflate the size of the interest-rate differential (IRD) penalties these banks charge their fixed-rate borrowers when they break their mortgages early.

The Big Six’s posted rates recently moved from obscurity to prominence when our banking regulator, the Office of the Superintendent of Financial Institutions (OSFI), introduced the Mortgage Qualifying Rate (MQR), otherwise known as the stress-test rate.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Canadian Mortgage Rates Move Lower After Bond Yields Drop on Coronavirus Fears

Monday Morning Interest Rate Update for February 3, 2020

by David Larock

Canada mortgage ratesGovernment of Canada (GoC) bonds yields fell again last week, primarily as a defensive response to the coronavirus crisis, which the World Health Organization is now calling a global public health emergency.

Contagion fears are stoking demand for safe-haven assets, such as sovereign bonds, putting downward pressure on their yields, and by association, the fixed mortgage rates that are priced on them.

Canadian mortgage lenders responded by continuing to lower their five-year fixed rates throughout the week.

Here are some of the coronavirus details that are fueling the market’s fear.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

The Bank of Canada’s Cautionary Comments Push Fixed Mortgage Rates Lower

Monday Morning Interest Rate Update for January 27, 2020

by David Larock

Canada Mortgage RatesThe Bank of Canada (BoC) left its policy rate unchanged last week, as widely expected, and that means variable mortgage rates will remain at their current levels for the time being.

The Bank also issued its latest Monetary Policy Report (MPR), which provides us with its quarterly assessment of economic conditions both at home and abroad.

The January MPR, along with the BoC’s accompanying commentary, conceded more uncertainty about the current conditions. This dovish shift led to a drop in Government of Canada (GoC) bond yields, which our fixed-rate mortgages are priced on, and lenders started lowering their five-year fixed mortgage rates shortly thereafter.

Today’s post will provide highlights from the BoC’s latest communications along with my take on how its more cautious outlook will likely impact both our fixed and variable mortgage rates going forward.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Forecast for Canadian Fixed and Variable Mortgage Rates in 2020

Monday Morning Interest Rate Update for January 13, 2020

by David Larock

Canada mortgage ratesIn today’s post I offer my predictions of where our fixed and variable mortgage rates are headed in 2020. (For those who are interested, here is link to my 2019 forecast, which has aged fairly well.)

We begin 2020 with an unusual backdrop for mortgage rates. The Government of Canada (GoC) bond-yield curve, which our fixed mortgage rates are priced on, remains partially inverted.

As I explain in detail in this post, this is a phenomenon that doesn’t occur very often. In normal markets, longer term interest rates are higher than shorter term rates. A yield-curve inversion happens when the yields offered on longer-term bonds drop below the yields offered on shorter-term bonds (see chart).

Government of Canada bond yield curve

In the current context, our yield curve is inverted essentially because the Bank of Canada (BoC) and the bond market have differing views on where our economy is headed.

At its last meeting of 2019, the Bank of Canada (BoC) continued to offer a relatively optimistic outlook for our growth prospects and determined that holding its policy rate steady at 1.75% was necessary in order to contain inflationary pressures. Conversely, the bond market spent 2019 bidding longer-term GoC bond yields lower, based on the belief that our economic growth will slow and that inflationary pressures will ease. (For anyone keeping score, the bond market has a much better forecasting track record than the BoC.)

Here are some examples of where their outlooks currently differ:

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Are Changes to the Mortgage Stress Test Coming?

Monday Morning Interest Rate Update for December 16, 2019

by David Larock

Canada mortgage ratesLast week Prime Minister Trudeau asked his federal Finance Minister Bill Morneau to “review and consider recommendations from financial agencies related to making the borrower stress test more dynamic.”

That open-ended mandate will lead to broad speculation about what revisions Mr. Morneau may propose. Here are my related thoughts.

First a quick review. The mortgage stress test requires federally regulated lenders to qualify mortgage borrowers using a higher interest rate than the one they will actually be paying.

For example, if you purchase a property today with a down payment of 20% and want to borrow at a five-year fixed rate of 3%, your lender will qualify your application using a rate that is the greater of today’s stress-test rate, which is currently 5.19%, or your contract rate plus 2%, which in this example works out to 5%. (Borrowers with down payments of less than 20% are simply qualified at the stress-test rate.)

Bluntly put, the stress test saved our hottest regional housing markets from over-heating.

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.

Five Takeaways from the Bank of Canada’s Latest Policy Statement

Monday Morning Interest Rate Update for December 9, 2019

by David Larock

Canada mortgage ratesThe Bank of Canada (BoC) held its policy rate at 1.75% when it met last Wednesday, as was widely expected.

The Bank’s accompanying statement came across as cautiously optimistic, and the bond futures market responded by decreasing the odds of a January rate cut from 20% to less than 10%.

Here are five highlights from the BoC’s latest statement, along with my thoughts.

  1. The Bank sees “nascent evidence that the global economy is stabilizing.”

“Nascent evidence” is about as soft an endorsement as you can get. And stabilizing how? About three-quarters of the world’s economies are growing at a rate of 2% or less. Here is a look at the third-quarter annualized GDP growth rates of the world’s five largest economies:

  1. U.S.: 2.1% (much slower pace than in 2018)
  2. China: 6% (slowest GDP growth rate in ten years)
  3. Japan: 0.2% (consensus forecast was 0.8%)
  4. Germany: 0.5% (falling steadily since the start of 2018)
  5. UK: 1% (weakest GDP growth rate since Q1 2010)

If the world economy is stabilizing, it is doing so at a growth-rate level that I would classify as one heartbeat above “coma.”

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David Larock is an independent full-time mortgage broker and industry insider who helps Canadians from coast to coast. If you are purchasing, refinancing or renewing your mortgage, contact Dave or apply for a Mortgage Check-up to obtain the best available rates and terms.
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