Emergency Rate Cut!
Bank of Canada has decreased their overnight rate by 0.50%, bringing it to 0.75%, effective Monday, March 16, 2020. Which for most lenders will likely decrease their Prime rate to 2.95% from the previous 3.45%.
This change will have an impact on those with a Variable Rate Mortgage or Home Equity Line of Credit. It will mean a $26 a month payment decrease for every $100,000.
Canada has launched aggressive new measures to support the economy amid the rapidly escalating COVID 19 crisis, as authorities announced a surprise interest rate cut and billions in new funding for businesses.
We are already seeing some lenders announce that they will be allowing you to hold or skip your mortgage payments in support of the recent events.
We anticipate more lenders to follow their lead.
The Bank will provide a full update of its outlook for the Canadian and global economies on April 15. As the situation evolves, Governing Council stands ready to adjust monetary policy further if required to support economic growth and keep inflation on target.
What does this mean for homebuyers?
If you are looking to buy a house right now, Banerjee said to be careful that you don’t spend more than you can actually afford.
“With the decrease in interest rates, it means that people can borrow more money than they could have a week ago.”
While money may be cheaper to borrow, he said, there is growing concern about a global economic slowdown. This means there is a potential for job loss or cutting back on hours at work.
'Mortgage Holiday'? Borrowers In Italy, U.K. May Get A Break From Payments, And Canada Could Follow
With global stock markets tanking and coronavirus cases rising rapidly in Asia, Europe and North America, politicians around the world are racing to unveil emergency measures to help the economy weather the storm.
In Italy, where the entire population of 65 million has been under lockdown since early this week, the country’s finance minister has announced a policy that has earned some attention: Mortgage payments ― as well as other loan repayments for individuals and households ― will be suspended during the crisis. Detail, such as how long the holiday will last, or how lenders will be compensated, haven’t been worked out yet.
Canada’s banking sector is generally in better shape than Italy’s, but “even so, I would be surprised to not see Canada adopt similar measures in the event the outbreak hits the same scale,” said Stephen Punwasi, a data analyst who specializes in the housing market.
“Canadians view their homes as a savings vehicle, retirement plan, and payday lender. The government knows this, so they’ll pull out all the stops to prevent forced liquidations.”
Delaying mortgage payments would put “great pressure” on lenders, Laird said. He expects that, in a situation like that, either the federal government or Canada Mortgage and Housing Corp. would offer lenders financial aid, potentially in the form of low-interest loans or cash injections.
What about renters?
While a “mortgage holiday” could help take some serious pressure off our financial system, it would be limited relief for households. Only 39 per cent of households in Canada are paying a mortgage, meaning this policy would do nothing to alleviate pressure on the 29 per cent of households who own their home outright, or the 32 per cent of households who rent.
Some cities in the U.S. ― notably Seattle and cities in California’s pricey Bay Area ― are moving to ban evictions and utility shutoffs during the outbreak, in an effort to take some pressure off renters. Under new rules passed by city councils in San Francisco and San Jose, anyone who can provide documentation showing their income was impacted by the coronavirus can fight eviction.
The core rationale behind these moves was summed up nicely by Dean Preston, a member of the San Francisco Board of Supervisors: “Right now, being secure in one’s home is absolutely essential. And it’s one of the best ways that we can prevent spread of coronavirus.”