How COVID-19 Is Impacting Mortgages In Canada
It was just announced that the Bank of Canada has decreased the prime lending rate on mortgages by 0.75 percent. This comes just days after the rate was cut by half a percent. This is in response to the economic issues contributed by COVID-19, as we follow suit from the United States plan to soften potential future economic issues. Due to the pandemic, people all over Canada (as well as worldwide), are focusing their spending on necessities more than ever. Investing in the real estate market is much less of a focus, and the Bank of Canada is looking to curb that.
We will see lower borrowing costs for the near future until the status of the virus improves. This negatively impacts banks and independent lenders across the country as this rate influences the percentage of income they make monthly on mortgages, but has great benefit to the average end user. Depending on the price of the home and depending on how long this rate continues, borrowers have the opportunity to save potentially a couple thousand dollars. This only influences variable mortgages which ride the prime lending rate set by the BoC. Fixed rate mortgages will not change as they always remain at whatever is initially agreed upon.
The Office of the Superintendent of Financial Institutions announced they are suspending the changes to the stress test which were planned for April 6. This is the benchmark percentage rate that will determine if you are able to afford an increase to your mortgage. The rate will become 4.89%, while the current rate is 5.19%. This loosening of mortgage qualifications will remain until the public consciousness resettles.
At the beginning of the year, the market was continuing to stabilize further. But due to the current status created by the virus, the public conscious has been stirred. After meeting with financial analysts from the G7 countries, they concluded this was the strongest course of action to maintain market stability. The influence COVID-19 has on the market was predicted to damage sales by major economists, while the exact numbers remain to be seen. It’s unclear how long this outbreak will last, this change to the rate is a precaution to curb the current status on property purchases. This is the first time the BoC has altered their rates since 2015, we are now seeing rates that we haven’t seen dip since 2018.
It’s only recommended that you purchase or invest in property now if you could afford it previously. It’s speculated that values of properties could rise thanks to the lower borrowing rate. This depends on how long the virus affects purchasing across the country. Job loss or diminished working hours is a possibility depending on your field. Always air on the side of caution for your financial benefit. If you have a high degree of comfort then it would be wise to proceed.