The Length of Our Recovery Could Have a Surprising Impact on Your Mortgage

Monday Morning Interest Rate Update for June 1, 2020

by David Larock
Canada mortgage rates

 

Last week Bank of Canada (BoC) Governor Poloz delivered his final speech and press conference before passing the baton to incoming Governor Tiff Macklem. I have always appreciated his ability to explain complex issues in plain-spoken terms and will miss hearing him at the podium.

His speech offered details of how the Bank grapples with monetary policy decisions in “unknowable times.” He walked listeners through examples of how the BoC has triangulated upside and downside risks during both the oil-price crash in 2015 and during the current COVID-19 crisis, using imperfect information and a wide range of forecasts. But it was his view of our prospects for recovery that seized the media’s interest.

Specifically, he said, “Because the [current] situation is more like a natural disaster than a recession, there is reason to expect confidence to be buttressed by fiscal income supports and a reasonably swift return to growth for significant segments of the economy.”

During his accompanying press conference, he added, “I do think that, on balance, the flow [of pessimism] that I’m hearing is a little too dire. It’s a little overblown.” Poloz believes that we are currently “tracking to our best-case scenario” and not to the worst-case scenario that many fear.

While I certainly hope that his forecast proves correct, I don’t think it is the most likely outcome.

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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.

Why CMHC Shouldn’t Raise Its Minimum Down Payment from 5% to 10%

Monday Morning Interest Rate Update for May 25, 2020

by David Larock

Canada mortgage rates

Last week, Evan Siddall, CEO of the Canada Mortgage and Housing Corporation (CMHC), made a speech to our federal government’s Standing Committee on Finance, and in it he floated the idea of increasing the minimum down payment required to purchase a residential property from 5% to 10%.

His recommendation to restrict lending seems out of sync at a time when our policy makers have put their monetary and fiscal stimulus firehoses on full blast in their attempts to counteract the massive negative economic impacts of COVID-19 and the oil-price crash.

Before I offer my take on Siddall’s surprising proposal, let’s look at the highlights from his speech, which provided an update to the committee on “how CMHC is helping to stabilize Canada’s financial system and support the economic well-being of households and small businesses during the COVID-19 pandemic.”

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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.

To Review

Monday Morning Interest Rate Update for May 19, 2020

by David Larock

I took the Victoria Day weekend off so there won’t be a new post this week. Instead, here are links to five of my most popular recent posts describing the unusual mortgage market we find ourselves in today and how best to navigate through it:

Toronto mortgage rates

The Bottom Line: Five-year fixed rates dropped a little last week while five-year variable rates were unchanged. The drop in our five-year fixed rates was caused largely by a reduction in lender risk premiums this time, and not by a drop in the Government of Canada five-year bond yield that our fixed rates are priced on. This is a slow-moving trend that I expect will continue in the week ahead. See you next week.

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.

Will Record Job Losses Lead to Negative Bond Yields?

Monday Morning Interest Rate Update for May 11, 2020

by David Larock

Canada mortgage rates

Last Friday, Statistics Canada (Stats Can) confirmed that our economy lost another two million jobs in April, adding dramatically to the one million jobs that were lost in March. The latest data also revealed that 2.5 million more Canadians worked less than half of their normal hours over the past two months.

For context, Stats Can noted that our recent job losses now far exceed our previous record drop, which occurred during the 1981-82 recession. Back then, we lost a total of 612,000 jobs spread out over a 17-month span. We have just absorbed more than three times that many losses in a fraction of the time.

Our unemployment rate has now spiked to 13%, and that only counts unemployed Canadians who are actively looking for work. If we count unemployed Canadians who have given up looking for work, our total unemployment rate rises to nearly 18%.

The question for readers of this blog is, what are the implications for our mortgage rates?

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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.

Should You Break Your Fixed-Rate Mortgage for a Lower Rate?

Monday Morning Interest Rate Update for May 4, 2020

by David Larock

I have been fielding a lot of calls lately from fixed-rate borrowers who are wondering if they could save money by breaking their current mortgage and switching to a lower rate.

Today’s post will walk you through some examples of borrowers who would, and wouldn’t, save money doing this in the current environment.

Evaluating whether now is a good time to break your mortgage boils down to five key factors:

  1. Current rate
  2. Current mortgage balance
  3. Remaining term and amortization
  4. Penalty to break (which can vary significantly) + any associated transaction costs
  5. The best available rate you are eligible for today

I will illustrate how this works by making some assumptions using the criteria outlined above.

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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 Are Finally Starting to Fall

Monday Morning Interest Rate Update for April 27, 2020

by David Larock

Canada mortgage rates

Most of the borrowers I speak with these days are surprised to learn that mortgage rates are higher now than they were before oil prices crashed and the COVID-19 crisis began.

This is understandable.

Our five-year fixed mortgage rates are priced on the five-year Government of Canada (GoC) bond yield plus a premium of between 1.25% and 1.50%. The five-year GoC bond yield has plummeted of late and closed at 0.44% on Friday. In normal times, that would put our five-year fixed mortgage rates somewhere between 1.69% and 1.94%.

Our five-year variable rates are priced off lender prime rates which move in lock step with the Bank of Canada’s (BoC) policy rate. The BoC slashed its policy rate by 1.50% in March, and it now stands at only 0.25%. Five-year variable rates have also tended to float at between 1.25% and 1.50% above the BoC’s policy rate. In normal times, that would put the variable rates on offer in the 1.5% to 1.75% range. (Most variable-rate borrowers with existing mortgages have seen their rates fall to those levels, but the variable rates offered to new borrowers today are still north of 2%.)

To state the obvious, these are not normal times.

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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.

Is the Bank of Canada’s Firehose Working?

Monday Morning Interest Rate Update for April 20, 2020

by David Larock

Canada mortgage ratesThe Bank of Canada (BoC) held its policy rate at 0.25% last week, as was universally expected.

The Bank also released its latest Monetary Policy Report (MPR) but without its usual economic forecasts for foreign and domestic economic growth over the next three years. The BoC assessed the outlook as “too uncertain at this point” and decided that “it would be false precision to offer its usual specific forecast.”

No argument here.

The Bank did speculate that relative to the fourth quarter of 2019, our GDP dropped between 1% and 3% in the first quarter and will likely drop between 15% and 30% in the second quarter. On a related note, last week Statistics Canada confirmed that our GDP dropped by 9% in March, marking our steepest monthly decline since record keeping began in 1961.

Here are five highlights from the BoC’s latest policy statement and accompanying MPR, followed by my take on the implications for our fixed and variable mortgage rates.

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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.

Our New Canadian Mortgage Landscape?

Monday Morning Interest Rate Update for April 13, 2020

by David Larock

Mortgage Advice

Last week we learned that our economy lost slightly more than 1 million jobs in March.

Over that same period, another 1.3 million Canadians, who were technically still employed, earned no income and a further 800,000 Canadians worked less than half of their normal hours.

The March employment plunge more than doubled the consensus forecast of 500,000 jobs lost, and it marked our economy’s worst month, by far, since we started keeping records in 1976. (By way of comparison, our second worst month for job losses was 129,000 in January 2009.)

As the significant economic impacts of the lockdown begin to take form, now seems like a good time to speculate on how lenders will adapt their mortgage lending policies to the new reality.

Changes are already afoot.

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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 Slam Dunk Mortgage Option Right Now (and a Warning about HELOCs)

Monday Morning Interest Rate Update for April 6, 2020

by David Larock

canada mortgage rates

If you need a mortgage now and you don’t already have a commitment in place, a variable rate seems like the clear choice – either for a purchase, refinance or renewal.

Normally I would hedge a little because every borrower’s circumstances are different, and I realize that some people just aren’t wired for variable-rate risk, but normal isn’t a word we’re using much these days.

To explain why I write that, let’s start with a snapshot of where rates are at the moment:

  • Five-year fixed rates are now offered in a range between 2.64% and 3.09%. (Where you fall within that range depends on your loan-to-value ratio and whether your mortgage is eligible for default insurance.)
  • Five-year variable rates are now widely available at anywhere from prime minus 0.30% to prime plus 0.05%, which works out to between 2.15% and 2.50%.

Both fixed and variable rates have moved higher of late.

My post from last week explains how we got here, but suffice to say, lenders have added significant risk premiums to their lending spreads. Gross spreads that are normally between 1.25% and 1.50% have been blown out to 2.00% to 2.50%, and that doesn’t seem likely to change until we are past the economic shocks of COVID-19 and the oil-price war.

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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 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.
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