It feels really strange writing about a tragedy that is affecting millions of people and only considering its economic impact on Canadian mortgage rates. Hopefully, this article helps you save some money on your mortgage, of which you can donate to one of these incredible charities who are trying to help people affected by the virus.
First off, it seems as though the economic impact of the Coronavirus will be worse than economists had initially assessed. Tens of millions of people are now being quarantined, China is shutting down factories and cases are springing up around the world. Before this virus even came to be known as the Coronavirus, economists had enough to be worried about; Trade wars, middle-east tensions, and spiraling debt. Now we can add one more to the list.
With a great deal of uncertainty surrounding the virus, its treatment, and its lethality, the world economy is bound to be affected in a significant way. Some experts are predicting that the virus may be with us for the duration of 2020. Although this may just be a prediction, what is real, is the threat that this virus poses to human life and the economy. Epidemiologists are already suggesting the real number of people infected is probably far more than 100,000.
Let’s have a closer look as to how this is affecting Canada and might impact your mortgage.
Canada’s Delicate Economy
The Canadian Minister of Finance warned that the virus will have a “real” impact on the Canadian economy. At a breakfast speech in Calgary, Minister Bill Morneau said the outbreak is expected to have a significant effect on global growth that will spill into Canada, disrupting tourism, supply chains, and commodity prices. He cited the recent 15% decline in oil prices as a result of reduced demand. We know that if commodities drop, so to will Canada’s economy and the Bank of Canada was already worried about the Canadian economy even before the virus.
Last month the Bank of Canada (BoC) held its overnight interest rate steady at 1.75%, which it has done since October 2018, even as other central banks have been decreasing their lending rates. The BoC did, however, leave the idea of a coming rate drop on the table if Canada’s Q4 economic slowdown continued. Unfortunately, the impact of the Coronavirus will only exacerbate our financial slowdown.
Financial markets don’t like uncertainty, and this virus and its impact definitely qualifies as that. Bond yields around the globe have been impacted and those of you following mortgage rates in Canada can see the effect the reduction in bond yields has had domestically.
Some Mortgage Specific Talk with Cannect
If you’re shopping for a mortgage and you check all of the boxes of a perfect client, you can expect to be offered as low as 2.44% on a five year fixed rate, or 2.65% on a five year variable rate. The five year fixed rate is 0.30% better than what a consumer could have secured just a month ago.
If you wait longer, you might even get a little bit better, but that might make the argument for a good variable rate mortgage stronger. If you pick the right lender for your variable rate mortgage you get to lock in at a really competitive 5 year fixed rate during your mortgage term, ask us how. The banks don’t offer this service, but there are plenty of lenders who do.
There is a really good argument for a rate cut in March, which alone probably isn’t enough to justify making the switch to a variable rate mortgage. But if you are considering moving or changing your mortgage before the end of your mortgage term remember the flexibility of a variable rate mortgage can also save you tens of thousands of dollars in penalties, especially when compared to the ridiculous penalties banks are charging to break mortgages these days.
If you have been reading my articles for a while you probably know that I usually favour the variable rate mortgage. It has almost always outperformed the fixed rate, and the flexibility of it can’t be beat. I believe that if you take a variable rate today you will be rewarded by the end of 2020, but that isn’t enough to completely ignore some incredibly low fixed rates currently being offered.
To help you through the decision please feel free to give us a shout. The team at Cannect has grown and we’re more equipped than ever to help you through your next decision.
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