Mortgage interest rates have officially hit record breaking lows after decreasing steadily over the last few months. Rate decreases have been driven largely due to market uncertainties associated with the COVID-19 pandemic. Concerns of a second-wave of COVID-19 in Canada have resulted in the 5-year bond yield dropping to its own historic low and bringing mortgage rates down even further. Since the 5-year bond yield is closely related to the pattern of movement for 5-year fixed rates, many lenders have followed suit with their 5-year fixed mortgage rates.
HSBC was the first lender to break the 2% barrier and drop their 5-year fixed default-insured mortgage rate to 1.85%. Following their announcement, several other lenders have followed in their footsteps and now have the lowest 5-year fixed rates starting at 1.85%. The decreasing rate trend has even reached 10-year fixed mortgage rates who have also decreased to the new record breaking lows of 2.84%. Mortgage rates are expected to remain low for the near future and experts are suggesting we might see them decrease even further as economic uncertainty continues.
There are several factors impacting the dramatic decreases we have been experiencing in mortgage rates. As previously mentioned, some investors are cautious about the possibility of a second wave of COVID-19 in Canada. A second wave would negatively impact the nation's economic recovery model and would likely result in even further decreases to bond yields. This would spiral down to the mortgage industry and would lead fixed mortgage rates in the same direction.
Similarly, the Bank of Canada (BoC) made a commitment to purchase $5 billion worth of bonds per week until the nation's economy begins to show strong signs of recovery. This agreement has allowed lenders to offer lower rates because their funding costs have fallen and they feel a sense of security that market liquidity will not decrease substantially. While the Bank of Canada’s weekly investments are taking place and lenders are seeing less risk in their investments, fixed and variable rates are likely to remain steady or drop below their current status. Many economy specialists are predicting that the Bank of Canada will continue to invest in purchasing bonds until economic uncertainty is no longer felt. This could continue for several more years.
Although the prime rate has not moved from 2.45% since its final drop on April 10th of this year, variable rates are continuously decreasing. Lenders have been able to keep reducing their variable rates by increasing their discount from the prime rate. The lowest variable rate currently advertised is held at 1.8% which is prime - 0.60%.
Record breaking low rates have been incredibly appealing for potential homebuyers who have not had their finances impacted by COVID-19. However, they could be causing some stress and doubt for existing homebuyers who are stuck in a mortgage with a much higher interest rate. A homebuyer who purchased a home exactly a year ago may have gotten their 5-year fixed rate mortgage at 2.99%. With current 5-year fixed rates as low as 1.85%, it is only natural that some homebuyers would want to refinance their mortgage and take advantage of a lower rate. The real question worth answering is how beneficial would this be for the average homeowner.
For the homeowner who took out their mortgage or refinanced their mortgage a year ago and locked themselves in at a 5-year fixed rate, it will likely be too soon to attempt to break their mortgage because of potentially exuberant penalty fees that they could face. In many cases, if a buyer wants to get out of their mortgage before their term is up, they will be facing prepayment penalties of some sort. However, the closer one is to the end of their term, the lower their penalties are likely to be. Also, if you are in a variable rate mortgage, your penalties tend to be only 3 months of interest payment in most cases.
If you are curious about whether you would benefit by taking advantage of these record breaking low mortgage rates and refinancing your mortgage, the expert mortgage brokers at Clover Mortgage are here to help you analyze your situation and weigh the pros and cons to a mortgage refinance.
Call or email one of our knowledgeable and trustworthy mortgage brokers to start the conversation about refinancing your mortgage. Our mortgage brokers will be able to look at your specific financial situation and help you understand the benefits and downsides of breaking your term! They will also be able to build you a refined mortgage strategy that can help you better plan for the future.
Clover Mortgage is entirely devoted to finding you the best rates and most suitable mortgage solutions. Call or text us today at 416-674-6222 or email us at firstname.lastname@example.org to start your mortgage refinancing inquiry!