“It is becoming clear that the first quarter of 2020 will be weaker than the Bank had expected” stated the Bank of Canada in their March 4, 2020 media press release.
As with any announcement about interest-rates, we are finding a large segment of people seeking clarity on the actual impact of this news for their personal mortgage. Well that’s what we’re here for!
What’s going on: We’re seeing the power of a Bank Of Canada rate cut in action. In an emergency move this week, the Bank of Canada cut the overnight interest rate by 0.5% (this is the first-rate cut the Bank of Canada has had since 2015).
What you need to know: Mortgage rates have no free will—they move in lockstep with these primary factors:
- For variable-rate mortgages (and home equity lines of credit): the overnight lending rate & the prime lending rate. Most banks have dropped their prime rate from 3.95% to 3.45%. If you have a variable-rate mortgage, you can expect your rate to drop and possibly your payments.
- For fixed-rate mortgages: the Government of Canada bond yields. Canada’s 5-year bond yield continued to fall this week, coming within 0.36 percentage points of its all-time low. Yields were already at all-time lows because of concerns the coronavirus would hit future economic growth. As such, Investors buy bonds because they are typically considered safer investments than stocks, especially Government bonds.
What does this mean in real life? With record low interest rates many homeowners are choosing to play it safe by redoing their mortgage early ensuring long term peace of mind. Benchmark is here to help you do just that!
How does this affect you? As anyone who owes money on a mortgage or has borrowed to buy something, paying less in annual interest can make a big difference to your bottom line. Just a few fractions of a percentage point could mean thousands if not tens of thousands of dollars in your pocket.
- For clients that have an active Benchmark approval but have not yet closed: Interest rates have not quite settled in just yet. Our team is monitoring these changes closely for you to ensure you get the best mortgage possible. Most lenders will only allow us one time to request a lower rate after the file was approved. As a result, we are being diligent in timing these requests. We will be communicating with you accordingly but please call our office if you’d like to discuss this further.
- For clients that have a mortgage renewing in 2021: We’ve yet to see the long term effect of the Corona Virus (COVID-19) outbreak on declining interest rates but as of this moment, many are speculating it could be temporary. What this means is the window of opportunity to secure an extremely low rate for the next five years could be well worth breaking your current mortgage. We’ve seen in many cases that if rates are even .25% lower than what you’re currently paying could save several thousands of dollars. Consider this, just one year ago rates were hovering at 1%-1.50 higher than they are today. There is no one size fits all strategy so our best advice is to have an Edmonton mortgage broker provide a complimentary assessment to see if renewing your mortgage early makes sense by saving you money.
Would you like to see what our team can do for you? Booking a time here.
Source: Bank of Canada Media Relations (March 4, 2020)