We have seen some turbulent times in the Mortgage and Stock Market over the past week or so. From crashing stock markets to declining interest rates, its been interesting to say the least. From my perspective the stock market correction was coming for along time. If you look at the stock market performance (especially since Trump came into power) its been practically an elevator run up to $30,000.00 points which we hit it a few weeks ago. Back in 2009 when we had the last big correction the Dow Jones Index was at roughly 14,000.00, then went down to 8,000.00 and in pretty much 11 years climbed to 30,000.00 so a correction was always going to happen sooner or later. It always takes some world event thing to trigger a correction and the coronavirus was the spark.
As a result, Mortgage rates have also fallen making borrowing money cheaper. The Bank of Canada finally cut rates by .50bps last week. This was long overdue and lagged G7 countries who have been reducing rates for the past 12 months. This rate drop now makes a variable mortgage more attractive again given its flexibility and with just 3-month interest penalty to break. Forecast are that The Bank of Canada may reduce the Prime/Variable Rate again in June so we will have to wait and see.
The coronavirus along with the drop in oil pries lead to a heavy sell off in the equity markets which has driven fixed rates lower. Remember fixed rates can fluctuate a lot more then the variable rate because they are corelated to the bond market so if people jump out of stocks and into bonds (seen as a safer investment) which we are seen right now, this will bring mortgage rates down, however the opposite is also true so when people jump back into equites and sell the bonds (which will happen eventually) fixed mortgage rates will go up again. So, no one knows for sure how long these lower fixed rates will be around, a lot depends on the containment of the virus and if things get better or worse. The lower prime/variable rate will stay around as The Bank of Canada take much longer to make these decisions on rate cuts or increases and will wait to see the impact of the rate cuts on the economy as a whole which can take a year or longer to have its full effect.
So, if you are in a variable mortgage you will see your mortgage payment come down which is good news. If you plan on purchasing a property or making any other changes to your mortgage a variable mortgage is now a good option along side the lower fixed options. For borrowers coming up for renewal, looking to consolidate debts, pull out some equity to renovate there home, for down payment on another property or just to get a lower rate to save on cash flow now is a great time to look at these options.
Please don’t hesitate to reach out with any questions.
Residential and Commercial Mortgage Agent
SAFEBRIDGE Financial Group
Broker License #10524
Direct Line | 416-899-1467
Fax | 1866 385-4049
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