As the global economy becomes more uncertain and tumultuous, investors are flocking to the bond market. When investors become overly concerned about global events (like a pandemic sweeping the planet) and the effects those events will have on trade, they purchase more Government-backed bonds. This pushes fixed-rate mortgages down.
When more investors turn to the bond market as their haven, the price of bonds increase, which simultaneously pushes down bond yields. In the mortgage lending world, lower bond yields make the costs of fixed-rate mortgages lower.
We can expect to see fixed rates drop between 5 basis points all the way to 20 basis points directly because of the coronavirus. So, for example, if fixed rates are 3 percent, we will see them go down to 2.80 percent soon.
Variable rates get influenced by the Bank of Canada’s overnight lending rate which get determined at its meetings held throughout the year. With global uncertainty looming, we can expect Stephen Poloz, the Governor of the Bank of Canada, to reduce its rate in 2020. The overnight lending rate directly affects the Prime Rate banks and other mortgage lenders use that determine a mortgage’s variable rate.
Mortgage rates in Canada went down when the world experienced the SARS outbreak, however, SARS was not nearly as infectious.
It is odd to discuss mortgage rates going down in a pandemic type situation, especially because we don’t know its seriousness and how it will play out, but for those interested in paying off their mortgage sooner or getting a lower mortgage payment, there is a silver lining.
Sarah A. Colucci
Mortgage Agent Lic. M14000929
Mortgage Edge, Broker 10680
Direct: (647) 773-4849
By: Sarah Colucci