Imagine you’re a bank fearful of borrowers not paying you back, potential housing devaluation and surging costs to fund your mortgages. The last time this happened was in the 80's where mortgage rates soared and home owners returned the keys to the lenders.
The last thing you’d be thinking about is slashing your mortgage rates. You’d raise them. And that’s exactly what most mortgage lenders are doing.
COVID-19has inflated lending costs, resulting in dozens of lenders lifting five-year fixed rates 10 to 25 basis points and slashing variable mortgage rate discounts by 50 basis points or more. (A basis point is one-hundredth of a percentage point.)
Fortunately, there are exceptions. HSBC, for example, has the lowest widely available rate in the nation, a variable at 1.84 per cent. Experts suggests only go variable if you’re financially strong with ample savings. That is, until rate discounts from the prime rate shrivel up.
At that point, it might make sense to consider a short-term fixed rate instead. But we’ll cross that bridge when we come to it.
It’s very possible that rates won’t surge as much as they did during the 2008 financial crisis. The Bank of Canada, Canada Mortgage and Housing Corp., the Office of the Superintendent of Financial Institutions and the federal Finance Department have taken extraordinary steps to support lending.
They’re doing that by purchasing default insured mortgages and providing regulatory capital relief to banks, among other things. Had Ottawa not acted so resolutely, you could see another 50-plus basis point surge in mortgage rates by next month.
The lowest five-year fixed rates are still in the low to mid-2 per cents, but with surging bond yields and risk/liquidity premiums in effect, we could see them move higher for a while. That would only increase the relative appeal of a prime minus 1 per cent variable for well-qualified borrowers.
Most likely, fixed rates will revert lower once funding cost volatility dies down and lenders are confident the worst is over for housing. We should eventually see interest rates drop further as a recession takes hold. That reversal lower could take weeks or months. There’s no way to know, so lock in a rate discount ASAP if you need financing before August.FIND OUT MORE
Raphael is an excellent listener and a passionate people person. Raphael loves BC and the opportunity it provides to connect
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