The coronavirus and massive rate cuts

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.