The Mortgage Minute |
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Over the past several days many financial institutions have quietly increased their fixed mortgage rates, increased their Prime rates, and decreased discounts from Prime. If you have been reading my blog or listening to my ramblings on Instagram or Facebook, these rate changes may baffle you based on everything I've told you about how rates are set. With the 5-year Canada bond yields continuing to drop, and with the markets crashing we would expect that rates would continue to drop, or at least stay put.
Economist Dr. Sherry Cooper explains why rates are going up while the markets continue to suffer: "over the past two weeks, liquidity has dried up. Financial instability has risen sharply with the high level of volatility. Banks have experienced significant withdrawals as consumers are hoarding cash like everything else. The cost of funds to banks has risen sharply because of the enhanced perception of risk. With the collapse in oil prices, banks exposed to the oil sector are building up reserves for nonperforming loans." So even though the Bank of Canada issued a second emergency reduction to the Overnight rate by 50 basis points to increase liquidity on March 13, financial institutions are concerned about unemployment rates and the risks associated with taking on new mortgages with mortgagors that could see reduced hours, work stoppages, and increasing unemployment numbers. With all that being said, rates are still lower than they have been for over a year, and I am showing clients 7 and 10 year fixed rate options to capitalize on low fixed rates. Additionally, I have been assured by my lenders that their underwriters are working remotely and are able to continue with business as usual. Take care of yourselves, and don't hesitate to reach out with any questions. I am working from home, and can get a mortgage done remotely without a client having to meet me in person. With all that being said, the most important thing is for all of you to stay safe, spend time with your family, and remember to exercise and eat well.
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Please reach out to me if you or a family member are encountering financial difficulties as a result of COVID-19 and aren’t sure of your next steps. To help Canadians who are struggling to make their mortgage payments, most lenders are offering customized payment plans and potential deferred payment options.
If you are a client of mine I can send you your mortgage number that will help speed up the process. If you aren't a client of mine, still reach out and I can help you navigate the process. Be patient, as the lenders are dealing with higher than usual volume, and let me know if you need anything else. Here are the customer service phone numbers. Stay safe! ATB 1-800-332-8383 B2B 1 800 263 8349 BMO 1-877-895-3278 Bridgewater 1-866-243-4301 CIBC 1-800-465-2422 CMLS 1-888-995-2657 Optimum 1-866-441-3775 Equitable 1-888-334-3313 Connect First 403-736-4000 Chinook Financial 403-934-3358 First Calgary Financial 403-736-4000 First National 1-888-488-0794 Haventree 1-855-272-0051 Home Trust 1-855-270-3630 HSBC 1-888-310-4722 ICICI 1-888-424-2422 Manulife 1-877-765-2265 MCAP 1-800-265-2624 Merix 1-877-637-4911 Marathon 1-855-503-6060 National Bank 1-888-835-6281 RBC 1-866-809-5800 RFA 1-877-416-7873 RMG 1-866-809-5800 Scotia 1-800-472-6842 Servus 1-877-378-8728 Street Capital 1-866-683-8090 TD 1-866-222-3456 Crashing stock markets, plummeting oil prices, and fears over the COVID-19 pandemic have resulted in multi-year lows in mortgage interest rates, making it an excellent time to consider buying or refinancing your mortgage.
Since most lenders have dropped their Prime rates by 1% in the last 3 weeks (from 3.95% to 2.95%), clients with variable rate mortgages are seeing significant decreases to their mortgage payments, as variable rates go up and down with the Prime rate. For example, you may have a variable rate of Prime minus 0.75 meaning that today your rate would be 2.20%. Fixed mortgage rates continue to drop and are between 2.39% - 2.69% for 5 year fixed terms. The lowest rates go to clients with insured mortgages (less than 20% down), and clients with conventional mortgages or rentals will have rates around 2.69%. To put this in perspective, last year at this time the most competitive rates were between 3.19%-3.39%. Keep in mind however, that rate is only one small piece of the mortgage discussion. Making a mortgage decision solely based on rate can be a costly mistake if you aren't fully aware of what you're signing up for, especially when it comes to break penalties. All lenders calculate penalties differently, so it is important to review all of the conditions before selecting a term. Now is a great time to consider buying, or refinancing, as the mortgage rates are the lowest that they have been in years. I will help you navigate all of your options, and will break down the differences between fixed and variable terms, and will help you choose the type of mortgage that is best for you. By now you will likely have heard that on Wednesday the Bank of Canada (BOC) announced a 0.50% rate cut to the overnight target rate, which is the lowest its been since the 2008 recession. The rate cuts by the Bank of Canada and the U.S. Fed are mainly in reaction to the threat to the global economy poised by COVID-19 (the coronavirus), and were intended to stabilize the housing markets.
In the wake of the BOC's decision, the big 6 banks have all dropped their Prime rates by 0.50%, meaning that most of the big banks are now using 3.45% as their Prime rate. This will instantly reduce the rates of homeowners with variable rates. Also know that variable rates are always communicated in relation to Prime. For example, my best variable rate right now is Prime minus 105 basis points. (3.45% - 1.05%= 2.40%). So clients that had this term earlier in the week would have had a rate of 2.90% (the old Prime minus 105 bps), but now wake up to a 2.40% rate. Right now is a great time to consider variable interest rates, as I am anticipating that Prime rates will drop again in the next 8 months. Variable rates also offer the most flexibility for home owners, as break penalties are a fraction of the break penalties associated with fixed rate mortgages. Fixed rates are also continuing to plummet. Fixed rates are impacted by bond yields, and with bond yields also falling, the fixed rates have been dropping consistently over the last month, and will continue to do so throughout the spring. Keep in mind however that your bank or credit union may not be as quick to pass on these rate drops to you (if you don't work with me), but all of my lenders have already sliced their rates within hours of the BOC's announcement. Now is a great time to think about taking out equity at a low interest rate to buy rental properties or invest in other ways. Some clients with high interest rates are also breaking those terms and signing up at much lower rates, and I can give you a free mortgage check-up to see if that would be the best option for you. Getting approved for a mortgage is more challenging today than it was five years ago. Qualifying requirements have changed, and there is more emphasis on verifying your information in your application. If this isn’t your first mortgage, then don’t be surprised if you’re getting asked for documents you didn’t have to provide before. While each mortgage situation is unique and requires different compliance documents, some standard verification documents are common to every mortgage approval. The following are a list of the most common documents requested when applying for a mortgage.
Credit Report Typically, the mortgage professional you’re working with will order your credit report and submit it to the lender with your mortgage application. Government Issued Identification This identification is required to verify your identity and also to ensure the correct spelling of your full legal name. Information on your driver’s license should be current and accurate. Social Insurance Number All income tax paying Canadians have this 9-digit number, also known as your SIN. Providing it when your broker is ordering your credit report ensures the report generated is for you and not for someone with the same or similar name and birth date. Down Payment Confirmation If the down payment is coming from your own funds, then the lender requires a 3-month history via bank statements or a statement of investments using GICs and RRSPs. If there is a large deposit in your account within the 90 days, an inheritance for example, then lenders will need to know where the money came from and will require verification. For gifted funds, you will need a gift letter from an immediate family member. Often lenders will ask for proof the funds have been deposited to your bank account. If your funds are borrowed, then you’ll be asked for paperwork to confirm the amount and terms. Income Confirmation You will usually have to provide your two most recent pay stubs, a Letter of Employment and in many cases, your last two years of tax returns and Notices of Assessment to confirm no outstanding taxes. Solicitor Information If your lender requires a lawyer to close your mortgage, you will need to provide the contact details including the name of the law firm, phone number, fax number, office address and email address. If you need a lawyer, I would be happy to refer a number of them to you. Existing Property Information If you are on the title of any other property, you will have to provide documentation to confirm the monthly costs related to that property. Agreement of Purchase and Sale If you are purchasing, this contract is required along with the property’s MLS sheet. Your Realtor will draw up the contract. If there are conditions such as subject to financing or subject to sale of your existing home, then the lender will need confirmation that those conditions are lifted. Your Realtor will provide that document. Appraisal Property appraisals are becoming more common these days, especially when you are putting down more than 20% and the mortgage is not insured. The lender wants to know the real value of the home, independent of its listing or negotiated price, to compare against what you’ve agreed to pay and to make sure the house is, in fact, worth the money. There may be a cost to you and varies depending on region, property, and lender requirements. Working with a Mortgage Professional An experienced mortgage professional will guide you through the mortgage process. Because they have developed relationships with lenders, they are equipped to work with lenders on your behalf. By working with a mortgage professional, you have a trusted advisor and problem solver who takes the time first to understand your needs. Both short-term and long-term, they can recommend the right mortgage and options available. The changes to the Stress Test will on average increase purchasing power by 3%, so if you were qualified to purchase up to $300,000, you might qualify for a $309,000 purchase come on April 6th. Clients with higher incomes and larger down payments will notice a greater increase in purchasing ability, and some examples I’ve read about show that on a $500,000 purchase for a high income earner, they might be able to increase their purchasing power up to $525,000. Just remember that everything is case by case.
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AuthorPaul holds a Master's degree in Business Administration, loves to golf, watch hockey, and drink black coffee. Archives
February 2024
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