Great economic insight on today’s Bank of Canada rate drop from Dominion Lending Centers Chief Economic, Dr. Sherry Cooper.

My summary:

Strains in the commercial paper and government securities markets triggered today’s action to engage in quantitative easing.

These large-scale purchases will create the liquidity in the financial system. Risk has risen, which creates the need for more significant cash injections.

The oil price cut alone would have been sufficient reason for the Bank of Canada to lower interest rates.

At this point, the Bank is not contemplating negative interest rates. Monetary policy has little further room to maneuver, given interest rates are already very low. With businesses closed, lower interest rates do not encourage consumers to go out and spend money.

Large-scale debt purchases by the Bank will continue for an extended period to provide liquidity. They want the economy to have an excellent foundation for growth when the economy resumes its normal functioning.

The cost of funds for the banks has risen sharply. CMHC is buying large volumes of mortgages from the banks, which, along with CMB purchases by the central bank, will shore up liquidity. The banks are well-capitalized and robust.

See Dr. Cooper entire article https://dominionlending.ca/news/bank-of-canada-cuts-rates-50-bps-to-0-25/

Mortgage deferrals are on the table.  But don’t assume guaranteed automatic approval.  Details depend on lender. See DLC COVID-19 page  https://dominionlending.ca/covid-19/ for contact info.  Have patience, lender phone lines are jammed.  Some lenders offering email request forms to streamline. Some lenders loosening up requests to extend to deferral on rental property as well. For the most part, some explanation of your income and financial hardship is needed. 

As you can expect,  a deferral is not consequence free, it will cost you interest, and also stick you with possible higher future payments, but it does offer immediate relief.  Renters should understand this is not a free pass to skip on rents, much hot debate in this arena.  Also, it is noted within the industry, that if you truly don’t need deferral, consider not filing this request, it will help keep our financial systems more stable and leave room for folks who truly need help with the deferrals.

Get everything in writing when you request your mortgage deferral.  Get the customer service rep confirmation number. It is promised that this should not affect your credit, however, mistakes can happen.  A mortgage missed payment is a very serious mark on your credit. Prepare yourself upfront by setting up credit monitoring at Equifax (the most popular report with lenders) https://www.consumer.equifax.ca/canada/home/en_ca_e/?efx_ref=null and at Transunion https://www.transunion.ca/.  The ongoing monitoring service is not free, but is critical if issues arise.  There is a free option by snail mail (does not include your score), available to you once per year.  Note that there is a lag in reporting, so it may take a month or so before credit is reported to the credit reporting agency.

At the time of this writing, looks like Equifax is stepping up and offering their one time report, with score included (usually about $25), for free.   https://www.consumer.equifax.ca/personal/products/credit-report/  Transunion has a free once per month disclosure report (will not include score). Make sure you don’t navigate out of the webpage once they display report…you will burn your monthly freebie (their interface is tricky and annoying) https://ocs.transunion.ca/ocs/home.html?lang=en

There are other ‘free credit reporting’ services out there, I cannot confidently comment on their validity or comprehensiveness.  Mortgage lenders use direct Equifax and Transunion, and the algorithms for the scoring is specific to that purpose.  You may see a different score on the consumer end, albeit it should give generally a good idea.  Lenders do use score as a guideline, but they look at each trade line item as well, that is why opening a full report and checking for mortgage delinquency items is important.

Some mortgage payments include property tax.  Make sure a missed payment or deferral in one doesn’t trigger non-payment in the other, especially the mortgage! I have seen some mistakes before on client files, triggering mortgage non-payment reporting.  I always recommend keeping mortgage and property tax payments separate for several reasons, despite the inconvenience to some borrowers.

Consider using your existing secured line of credit in combination, or in lieu of, mortgage deferral.  It may be a cheaper interest option.  As a proactive measure, consider getting secured lines of credit.  Or explore a refinance. Contact me to explore the options.

Take advantage of the various other deferral programs.  Many cities offering property tax deferral, utility deferral.  There may be some condo fee deferrals as well.

There may be some relief with your credit cards and unsecured loans, try contacting them to see if they can help.  I wouldn’t be surprised if there is some government announcement about help on this matter in the future .

Bank of Canada lowers overnight rate by 0.5% again.   This totals 1.5% drop in the last several weeks.  Most lenders are matching this latest drop, prime rate for the most part is now 2.45% (updated).  Your variable rate mortgage and secured lines of credit  will benefit.  Exact word from BoC:

“The intent of our decision today is two-fold: to immediately support the financial system so it keeps on providing credit, and, over the longer term, to lay the foundation for the economy’s return to normalcy.”

Next scheduled meeting is Apr 15.

Many of the major lenders are providing beneficial options during this time to help alleviate some of the financial stress you may be facing.  Depending on your lender, you will be able to defer your mortgage payments for up to six months as well as being able to potentially re-amortize the loan or make special payment arrangements. This will offer some temporary relief for those with any loss of income as a result of this crisis.

It is important to contact your lender, before you have any missed payments.  There is more information and lender contact numbers on the Dominion Lending Centres COVID-19 page. https://dominionlending.ca/covid-19/

So much going on in mortgage news. A very brief snapshot over the last couple of days:

• Modification to the stress test for insured mortgages, that was to be implemented Apr 6, is on hold.
• Bank of Canada cut overnight rate by another 0.5%.  Prime rate is 2.95%.  Your existing variable rate mortgage and secured line of credit will benefit.
• US Federal Reserve made further cuts, highly probable Bank of Canada  will follow suit.
• Banks and lenders offering mortgage payment assistance for hardship.  More details to be rolled out.
• CMHC and other mortgage insurers also offering mortgage assistance for mortgages that are insured.
• Banks are challenged with liquidity and risk.  So, at this point in time, don’t expect rates to be dropping significantly.
• Tax filing deadline move  to Jun 1.

More to follows and details to come. Keep posted with my updates.

I do not need to state the obvious, we are in unprecedented times.  My heart goes out to those affected, here in our immediate communities, Canada and the rest of the world.

Understandably, you may be concerned about your finances and mortgage.  You may have tons of questions and may feel overwhelmed with confusing information.   I am here to help and support you.

In times like this, everyone has different ways to contribute (it’s so amazing to see the compassion and beautiful community stories).  And even though this issue feels overwhelming on a global level, don’t underestimate the positive impact of your contribution, whether it’s simply practicing social distancing, calling a lonely loved one, or using your unique skillset at your occupation. This event has shown us how inter-connected we really are, how we need each other, and how our jobs and what we do everyday matters.  This inspires me to do the best I can with my skillset and help you in the capacity of your mortgage and finances.

If you have questions about your mortgage options or need advice, feel free to reach out to me.

I would like to also keep you informed.  There is so much mortgage news out there to process and decipher, it’s hard to keep track of.  To this end, my amazing team at Dominion Lending Centres has created a dedicated web page to COVID-19 updates with respect to mortgages.

This page will be updated continuously, and is an amazing resource for your questions and concerns. The link is  https://dominionlending.ca/covid-19/

Emergency times. Coronavirus. Bank of Canada lowers overnight rate another 0.5%. ” Governing Council stands ready to adjust monetary policy further if required to support economic growth and keep inflation on target.” News is evolving. Impact on mortgage rates to be determined.

Today, Bank of Canada (BoC) lowered their overnight rate by 0.5%. This quickly follows US Federal Reserve drop from yesterday’s emergency meeting.

We will have to wait and see if banks match the drop in the prime rate, which affects your variable rate mortgage. The last two times there was a rate drop (going way back to July 2015 and January 2015), the banks did not fully match the 0.25% BoC rate drop, each time only dropping prime rate by 0.15%. Otherwise, going back a decade, every other increase and decrease has been in lock step. So we have two precedents showing banks can go their own way. As well, the cost of funds for banks has risen with the surge in credit spreads, so they may not want to ‘pass on the savings’ to consumers.

An example change in monthly mortgage payments is $30/m per $100K mortgage balance, if full 0.5% drop. However, some variable rate mortgages do not change monthly payment with rate change, you will have to review your mortgage details.  A drop in prime rate also will affect your secured home line of credit.

The announcement paints a picture of rough times. Reference to multiple factors, including coronavirus, rail blockades, teacher strikes and winter storms.

“It is likely that as the virus spreads, business and consumer confidence will deteriorate, further depressing activity……Meanwhile, business investment does not appear to be recovering as was expected following positive trade policy developments.”

BoC also mentions deferring to other economies.

“The Bank continues to closely monitor economic and financial conditions, in coordination with other G7 central banks and fiscal authorities.”

The next scheduled announcement is April 15. An unscheduled emergency rate announcement may not be out of the question. The US Federal Reserve did such that this week.

Finally the government has heeded to some common sense recommendations from the mortgage industry.  Effective April 6, 2020, there will be a slight modification  to the ‘benchmark rate’ used to qualify for insured mortgages.  This should reduce the qualifying rate by about 0.30% if contract rates remain at roughly today’s levels, and translates to about 3% more buying power.

Note, this affects only insured mortgages, meaning ‘high ratio’ less than 20% down payment purchase.  Only owner occupied (single family dwelling up to fourplex) or duplex to fourplex rental purchases can be insured.  As of 2018, insured mortgages accounted for less than a third of new mortgages.

Refinances and single family rentals cannot be insured, and fall into ‘uninsured’ category.   However, a similar qualifying approach for uninsured mortgages is being considered. A communication on this matter is expected by April 1, with changes effective on April 6.

Instead of the more ‘static’ rate approach currently, the new benchmark rate will be the weekly median 5-year fixed insured mortgage rate from mortgage insurance applications, plus 2%.  Perhaps this is adding more unnecessary government bureaucracy and complexity to the stress test.  Although it is a relief to see drop in qualifying rate, now how will buyers time their home buying decision, if rate is changing? Working closely with a mortgage broker is now even more important for this reason, as you can be advised  if your specific situation changes.

According Mortgage Professionals Canada, a more reasonable ‘stress test’  is closer to 0.75% above contract rate (as opposed to 2%). This is based on calculations that take into account income growth and mortgage principal payment over the term of the mortgage.   Current response from head of CHMC (Canada’s largest mortgage insurer, which regulates mortgage insurance)  Evan Siddall, “Calls to reduce the margin (from 200 to 75 bps) do not have traction at present.”  Things may change, as Siddall has announced his departure from CMHC.

We will get more practical clarity once April 6 hits and this test is applied to applications.

Bank of Canada holds the rate steady. Your variable rate mortgage remains unchanged. More grim language used. “..there remains a high degree of uncertainty and geopolitical tensions have re-emerged, with tragic consequences” “Governing Council will be watching closely to see if the recent slowdown in growth is more persistent than forecast.”  Next announcement is Mar 4.