With all the uncertainty going on in the world right now, we asked our mortgage specialist Bryce Nichol with Axiom Mortgage Solutions....what's up?? This is a good and informative read...Thank You Bryce!
Well, it has been quite a crazy month in the mortgage industry. After a long wait, we are finally starting to see some changes coming to qualifying rules. We all love to hate the government’s strict “Stress Test” and with good reason, so when we hear that the government is starting to listen, it helps us to see a light at the end of the tunnel. As of April 6th, we will see some small changes to the way the government requires banks and federally regulated institutions to qualify their mortgage borrowers. While it’s still a long way from what the mortgage industry is lobbying for, it is a change nonetheless. The changes coming as of next month mean that an INSURED mortgage will now qualify at the higher of two options:
- The weekly median 5-year fixed rate (as determined by the government weekly, based on the previous week's average insured application rates from the lenders) plus 2%
- The borrower's actual contract rate (ex. 2.34% today)
What is the weekly median 5-year fixed rate? It will be the average of the rates across the board. So if we're looking at 2.34% today from our lowest rate lenders and a rate somewhere around 2.79% as the highest rate, you'll get an average somewhere around 2.55 (if all things are even), but likely lower because more banks are dropping their rates and as such the average will go down. So, the rate is determined from the rates submitted in the previous week's applications to the insurers. The data will be collected and reported to the government at which point they will determine the new average and publish that on Monday of the following week (that week's new qualifying rate benchmark). The hope is that this will be more indicative of the current market versus the previous benchmark which was substantially higher than anything anyone was paying. That being said, with a 2% buffer added to the median rate, we're still looking at a very strict qualifying rate. Let's say the median is 2.45% for this week, the benchmark will be 4.45%. While that is better than 5.19%, it still is a little aggressive, and we hope to see it reduced even further to make qualifying for a mortgage easier for first time homebuyers.
So, how about that Corona Virus... How has that impacted the mortgage market? Well, if there's anything good to come out of a new epidemic, this could be it. We have seen the Bank of Canada drop their overnight lending rate (prime) by 0.5%, and while we weren't immediately expecting the banks to follow the same aggressive drop, they did surprise us by dropping their lending prime by the same 0.5% from 3.95% to 3.45%. As such, we now have all variable rate mortgages dropping by 0.5% as well as lines of credit, Home Equity lines of Credit and variable rate loans. This is good news for those who have been riding out the variable rates as up until now fixed rates have been so far below the variable that variable rate sales have gone down, at least in my market. Traditionally, variable rates have been lower or almost identical to the fixed rate while offering the option of savings over time as the rates go down or up. Now, we have variable rates again matched with the 5-year fixed for the most part. This will definitely mean a reduction of total interest for those borrowers on the variable and more principal being paid on their mortgage, without them having to do anything to change it.
Fixed rates have also dropped drastically. Last week we saw one of Canada's Big 5 banks drop their 5-year fixed rate to 2.34% for insured mortgages and their conventional rates to 2.59% for a 25-year amortization on an owner-occupied home and 2.69% for a 30-year owner occupied mortgage. These rates were down by about 0.4% across the board for this lender. That's a drop! Now, this week, we're seeing more lenders matching up with this lender and offering similar and possibly lower rates for the 5-year insured mortgage. We had a lender recently announce 2.29% for a 60-day quick-close mortgage. So, the market is extremely competitive. We still have a few lenders up around 2.6%, but we expect the downward pressure to push them soon as well.
So, what does this mean for you, and how can you benefit?
If you're looking to purchase, or perhaps you're sitting on the fence trying to decide if it's the best time, there's no better time than today, in my opinion. House prices are still quite low relatively, and mortgage rates are back at their all-time-lows. And, as we have all heard the phrase "buy low, sell high", the opportunity to buy a home at a much lower price and have mortgage prices also at the lowest point, it's a win-win. You will have a lower mortgage payment and pay off your mortgage faster with a lower rate.
Maybe you have a home and it's locked into a term right now. Let's say you have 2 to 3 years left on your mortgage term. Your rate is probably in the 2.9 - 3.6% range. With rates as low as 2.29% for insured or transfer mortgages, you stand to save thousands of dollars in interest over the remainder of your term - even with the penalty. As I've been calculating this for many of my clients this past week, the savings are tremendous and well worth the minimal effort to early renew. Banks will often eat all the costs (the legal and appraisal) as well as adding your mortgage penalty onto your mortgage (up to $3000 if it's an insured mortgage) with no additional insurer premiums. In as little as three weeks, you can have your mortgage moved to another lender and be on your way to saving money and paying down your mortgage faster.
If you're looking to refinance or pull out equity, rates as low as 2.59% mean that you're saving interest as well. And, if you're pulling the cash out to pay down higher interest credit cards, loans or lines of credit, you will be reducing your overall payments, making life more affordable. And, with prime dropping, the Home Equity Line of Credit rates are now sitting around 3.95% (Prime + 0.5); another great option for borrowing against your home without having to touch your existing mortgage (which can incur a payout penalty).
Looking to purchase or refinance a single-family rental property, you’re in luck. Mortgage rates are now as low as 2.64% for a 5-year fixed rate.
If you're looking for mortgage advice, whether you want to purchase, refinance, renew a mortgage, or build a home, I'd love to help you out.
Bryce Nichol, a mortgage broker with Axiom Mortgage Solutions in Calgary, has been serving people's mortgage needs for over 15 years. Bryce is licensed in both Alberta and BC to assist home buyers further. Whether you're a first time homebuyer, or a seasoned investor, Bryce can help. With access to virtually every lender in Canada, including major banks, local credit unions, monolines, alternative and private lenders.