With Prime rates dropping and markets crashing, why are mortgage rates going up?

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.