Mortgage rates have come down – and then gone up Why?
Over the past month, the Bank of Canada has lowered its overnight rate by a whopping 1.5 percentage points to a mere 0.25% to stimulate the economy including real estate. The idea is to keep buyers in the market, and sellers supplied with lots of qualified buyers. Many people expected mortgage rates to fall equivalently. But banks have raised mortgage rates for fixed- and variable-rate loans. That’s not what happens typically when the Bank cuts its overnight rate.
Covid-19 have reduced the earnings of banks and dramatically increased their risk of loan defaults. Banks have also been swamped by thousands of applications to defer mortgage payments.
As a result, banks slashed their prime rates but eliminated their usual discounts to prime for new variable-rate mortgage loans, and also raised fixed-rate mortgage rates
The Reason: To mitigate the risk of defaults and ensure better liquidity, they raised their interest rates.
“The market is expected to slow down. Both buyers and sellers are anxious about the virus, but for the moment there is still lots of active interest” says Kenny Langburt, residential and commercial broker at ReMax Ambiance. “Real estate, in general, is a very stable investment. In the longer run, high demand and historic low inventory of listed homes for sale and ultra low interest rates means any pullback will likely be short-lived and prices should hold up.”
So…… Fixed or variable?
One: If you are comfortable waiting things out, so a closed variable rate will be cheaper around 2.7%*
Two: keep in mind even higher fixed-mortgage rates are still at record lows. .
If you need help navigating through this crazy time, feel free to reach out to me at 514-267-9793 and in setting aside some time to talk.