Skip to main content

Fixed mortgage rates hiked and discounts on variable rates slashed as banks desperately seek liquidity, while government intervenes.

With the Bank of Canada(BoC) dropping its overnight rate by a full percentage point this month in response to the COVID-19 pandemic, it would seem to be a great time to shop for a new mortgage. However, advertised interest rates for new mortgage applications started climbing significantly last week.

Lenders started increasing rates last Friday (March 13th, the same day that the BoC made its emergency cut to the overnight interest rate). That includes major lenders such as Scotiabank, TD and RBC. The financial institutions have also been reducing variable-rate mortgage discounts on the prime rate, which is currently 2.95%.

Fixed rates are usually connected to the bond market, but because banks need liquidity right now, they’re increasing the rates. The bond market had previously dropped in line with the central bank’s interest rate, but has also rebounded over the past couple of days. Liquidity for the banks is a key issue for the federal government right now, which announced March 20th, that it is introducing ‘changes that will help provide stable funding and liquidity to financial institutions and mortgage lenders and support continued lending to Canadian businesses and consumers.”

This follows an announcement by the Ministry of Finance that it is launching ‘a $50 billion Insured Mortgage Purchase Program (IMPP). The amendments allow mortgage lenders to pool previously uninsured mortgages into National Housing Act Mortgage-Backed Securities for CMHC, to purchase these securities through the IMPP. The impact of the measure will provide financial institutions with more liquidity. This, in turn, will allow financial institutions to continue lending to businesses as well as individuals, while assisting customers who face hardship and need flexibility, on a case by case basis.

By insuring previously uninsured mortgages, the government is essentially taking on the risk associated with those loans, freeing up banks’ balance sheets to provide more liquidity. The moves are intended to support banks while they offer such programs as “six-month- deferrals of mortgage payments’ to customers who are facing financial hardship due to the COVID-19 pandemic.

Even though rates for new mortgages are currently rising, applicants are rushing to get a mortgage on the back of news that the Bank of Canada had slashed its overnight rate. If you need any advice on your current mortgage, please do not hesitate to contact us.

Original Article:

Close Menu