COVID-19 Top 5 Mortgage Q & A’s – March 18, 2020

What a year 2020 has been so far! The last 30 days have been unbelievable and has altered all of our lives. During these times most of us are stuck at home isolated, hopefully with our families or roommates. Most of us are worried about our health as well as making ends meet, paying bills and keeping our heads above water. I have heard your mortgage concerns and have provided answers to the top five questions that have arisen during the recent events of the last few weeks. It is important to remember that we will eventually make it through these trying times!

It is my job is to try to provide you with sound advice and help you save some money during and beyond this crisis.

Q-What is happening with the Bank of Canada’s Prime Rate & are we expecting additional drops?

A-Last Friday the Bank of Canada dropped the prime rate by 0.50%. The Prime Rate is used by lenders to determine the cost of borrowing money among themselves and may not always actually affect the retail prime rate the banks provide to the consumer. Sunday the major banks announced that they would drop the retail prime rate from 3.45% to 2.95%.

The retail prime rate affects loans that have variable rates based on the prime rate. For example, variable-rate mortgages as well as credit lines. The interest calculated on these loans fluctuates with the retail prime rate. The expectation from analysts is that due to the US Federal reserve dropping the American prime rate to near zero that the Bank of Canada may be forced to reduce again before the scheduled April 15th meeting. It is however unclear at this time if future rate drops will be passed along to the consumer.

Q- Is now a good time to lock-in my variable rate mortgage?

A-The quick answer to this is no. Variable-rate mortgages are trending downward at this time, and because of that, it may not be the best time to lock in a fixed-rate mortgage. Your savings will most likely come with a variable rate for the near future.

Q-Is now a good time to refinance my fixed-rate mortgage?

A-There is a lot of misinformation regarding the fixed mortgage rate dropping claiming that now is a good time to refinance. This may not be true. If we generalize, five-year fixed mortgage rates are around 2 ½% they may be slightly lower or higher depending on specific transactions. The mid 2% rages are similar to those rates that have been available over the last five years and most borrowers already have rates below 3%. This combined with penalties makes refinancing not logical. The penalty to break a fixed-rate mortgage is an interest rate differential or (IRD). Most of the money saved with a lower rate will be charged in the penalty. Most fixed-rate mortgages should not be refinanced with some exceptions. If you have a rate higher than 3% it may be worth a quick review to determine your options. If you are thinking of refinancing you will need to ask your lender the following:

Can I break my mortgage? – some mortgages can only be broken for a sale and are not eligible for refinancing.
What is the penalty to break my mortgage?
What is the maturity date of my mortgage and the exact balance of my mortgage today?

Q-Are fixed rates going down because of the Bank of Canada has lowered rates?

A- No, as of today fixed mortgage rates are actually increasing. The speculation is that lenders are concerned with their exposure to housing debt and not encouraging borrowers to borrow more new money.

Q-What should I do if I can’t make my mortgage payment

A-Today the six major banks have announced that they will be allowing mortgage rates to be deferred for six months. At the time of writing this, the details were still unclear. Please reach out to me for additional advice. A lot of lenders are allowing a skip a payment plan and may actually have that in the mortgage contract. If you are questioning your ability to maintain your payments reach out to your lender and discuss your options. CMHC, as well as other insurers, are also working on a plan to assist borrowers with insured mortgages to get through these times.

If you have read this and still have additional questions unique to your situation please feel free to schedule a call with me anytime. I pride myself on providing clients with honest sound advice to help guide them toward their best mortgage options.

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