The Canadian mortgage market has witnessed another drastic effect of COVID-19 with the recent raising of both fixed and variable mortgage rates leaving borrowers dismayed. To weather this sudden storm, borrowers need to act smart to be able to wade past the problem.
Fixed Rate Borrowers: Fixed rate borrowers got a chance to break their mortgages and lock in rates when the brief window to do so opened. Those borrowers who took up this opportunity got the chance to up their potential savings. This, however, is dependent on the remaining time on the mortgages and the fixed-rate penalty which their lender is charging them. Those who did not avail of this tremendous opportunity, shouldn’t hustle into anything new and wait instead, for the bond market to revive.
Variable Rate Borrowers: Those borrowers who are currently holding variable-rate mortgages may have witnessed a drop in the prime rate and hence they don't have to worry about anything. If and when the Bank of Canada cuts the policy rate, which is likely, and your lender decides to pass on the cuts, chances are your rate is bound to drop further. For now, be content with your current rate. For those who are inclined towards converting to fixed-rate borrowings, they should wait a bit while the government's fixed mortgage rates and bond yields come down again.
Those renewing their borrowings
If you have been looking for a new mortgage, whether it is simply renewing your old mortgage for better terms or taking a new one altogether, and missed the bus before the rate went up, we recommend you should lean towards making flexibility as your priority.
For such people, Variable Rate mortgages make more sense as they are quite flexible. This is because Variable Rate mortgages can be converted to fixed-rate ones at any given point during your loan period. The small price to pay here is the penalty levied on three months' interest. All these facts allow for a lot of flexibility in your hands. So though shorter terms at fixed rates give you the option to reset the rate earlier, they actually end up much inflated than the fixed rates for a longer period of five years. So these longer fixed rates for five years are beneficial to you as they are cheaper. Moreover, your lender may be in a generous mood and reduce your penalty if you opt to stick to the same lender.
When to look at Refinancing:
In case you are a borrower with high debts over and above your mortgage you must look at refinancing if you are in need of better cash flow. But this needs to be done quickly because if default rates begin increasing lenders will have less interest in debt consolidation loans. This would mean a big jump in the premium on refinanced mortgages.
Due to market volatility in times of COVID-19, it is best to keep your financial situation as flexible as you can. You'd need expert help in crunching numbers in order to determine what's best for you in your current mortgage and financial scenario.
All you have to do is contact us at: and leave your worries to us.