How the COVID-19 Pandemic Will Affect Your Mortgage

My team and I want to extend our best wishes to you and your loved ones during this unprecedented time. Stay safe. We will get through this together. I am Matt Parker, your host of the House Rich Homeowner podcast. Managing your home finances is hard. After many years in the mortgage industry, I've decided to combine my knowledge, resources and connections and turn them over to each week I'll be featuring different home finance experts on my own personal insight to help you achieve financial peace at home. Let's go. Hey there, Matt Parker here. First off, I just wanted to wish everyone the best in these troubling times. I hope you're safe, families safe and, and everything is okay on your end. And you know, I believe this too shall pass and we'll get through this together. But I wanted to send to just put together an update on really what's happening in the mortgage world to keep you informed and up to date on all the current changes with rate changes also just in terms of mortgages themselves with payments and what that might look like if for some, if people are laid off or any of those different things. So first I'll touch on mortgage rates. So the biggest thing that we've seen is the bank of Canada lowered the overnight lending rate early in March. And then also just last Friday, they also lowered their overnight lending rate again by another 50 basis points or half a percentage point, 0.5%. And that was unexpected. And an emergency rate cut sort of following suit to what the Feds did down south. So what that's done is we've seen the big banks lower prime rate. So it went from 3.95 quickly down to 3.45 down to 2.95 at pretty much all the big banks. TD slightly variance is a little bit different, but we don't know if all lenders will be able to accommodate this full rate cut, but I'd imagine they probably will. But we're waiting to see what some of the monoline or smaller lenders will do with it as well, just from their business model standpoint. So what that's done. And then also on the bond market, I mean it's the first time in history that we saw all the yields under 1%. So that's been what's been the biggest driver of downward pressure on fixed rate mortgages. So the biggest thing is we're actually seeing interest rates tick up a little bit. Now when I say tick up on a variable rate standpoint, it's nothing to do with actually what prime rate is doing. It's what the discount off of prime is doing. Lenders are, if you want to look at it though as a bank or all lenders, they're scared of losses right now just because there's so much volatility, there's so much uncertainty, there's so much change happening very quickly that they're reducing the discount off of prime to protect themselves going forward. So we still have a few lenders that still have a very healthy discount off of prime, but we're starting to see some actually minimize that quite significantly. So there as an example, if it was at prime less 1%, some lenders are now at prime less 0.25%. But not everyone is. So contact us if you have any specific questions on your lender that won't affect your current locked in discount off of prime. That would only be a new mortgage. So if you have a current discount off of prime, your rate would be what prime rate is minus that discount off of prime. So at most of the lenders it's at 2.95%. As an example, if you were prime less 1%, you'd have to be at 1.95. If you were prime less than half, you'd be at 2.45%, et cetera. So that's secured in for the term of your mortgage. The actual discount off of prime, what also but what we're seeing is for new mortgage applications the reduction on prime is reducing. So if, if you have a client or you're looking for a mortgage yourself, it's best to get a rate hold on those. Just because we're seeing reductions in that discount off of prime. Now also we're seeing a little bit of uptick on fixed rates as well. Really nothing to do with the bond market mostly definitely to do with just the lenders fear of losing and default mortgages, mortgage defaulting or not being paid and just losing money. So they're trying to buffer in a bit of a protection there for them. One of the things is on Friday, I mean a few different things. So the superintendent of financial institution or the office of super so OSFI osce most people refer to it as on Friday announced it was lowering the capital requirements for banks which would free up an additional 300 billion of lending capacity. So they're making it a little bit easier for them if needed to lend out monies in challenging times for people. So that's one thing that they're doing. I would say the biggest thing to do would just make sure that if you do need to or are looking to secure a mortgage in the next few months, let's say 120 days over these uncertain times, which is still able to be done at the moment. It's probably best to secure rate hold as I said before, just because we're not sure exactly what's going to happen. It's a very interesting time. So that's probably the best thing to do. But that's the reasoning for it is just their perceived risk in the marketplace. So if it doesn't make sense what they're doing, that's why they're probably doing it is to protect themselves long term. Another thing that was introduced. Oh, and then back to the interest rates. So the next bank of Canada meeting in April. So we'll see, we may see further decreases in, in the bank of Canada, the interest rates, we might see further declines. Not sure what that will do to actually prime rate or what you as a consumer receive. But there could be further, further discounts all the way down because right now it's at 0.75 at the bank of Canada could easily be down another 50 basis points, 0.25%. So that we'll just have to see how this unfolds over the, over the coming, the coming month or so. And the other thing is CMHC is going to purchase up to 50 billion of insured mortgage pools. So that's just to protect a lot of the insurers. That's sort of a government protection for. So not to protect the insurers, sorry, protect the lenders to buy up these insured mortgage pools that lenders can put together to offload the sort of the risk internally for that. So there's a lot of things that, that they're trying to do to stabilize the market. I mean we are lucky to live in a very strong banking economy. So this is a time where having these large institutions that hopefully have the capacity to handle these challenges is very important. They can be very powerful at times, but also in these times of need they can be very helpful. So that's definitely a big thing to look at going forward. So it was very similar to what they did during the 2008, 2009 financial crisis was just to acquire up to 50 billion in government insured mortgages, so mortgage bonds. So yeah, the bank announced that today it'll probably target purchases of up to 5 million per week as the conditions warrant. So again, trying to, trying to get involved, trying to alleviate risk for the banks and to allow that. One of the big things is a lot of consumers. I think the biggest uncertainty is in terms of employment is if people aren't getting paid, if they aren't able to work, if they can't make their mortgage payments, that kind of thing. Because I know a lot of Vancouverites and probably Canadians might not have reserves that can accommodate this length of period of potentially not being able to work like they're used to or rely upon the earnings or the company can't pay them. I mean, there's so many trickle down effects here with small business and challenges that way as well. So what we're seeing is if clients have borrowing capacity, meaning lines of credit on their home or helocs that they have access to equity from, or they have unsecured lines of credit, they have credit cards, all these different lending products, if they start getting used more and more and more and more, that's going to increase the borrowing amount that the consumer base is borrowing and increase the banks lending out funds. I mean, they've approved these limits, but they generally don't count on everyone maxing out those credit products. So that can have a big strain on liquidity at the bank. So that's another thing where hopefully these programs of protecting the institutions from a government standpoint can come in and alleviate that tightening of really if you want to look at it as cash flow from the lender side of things. So that's probably one area that is probably of concern is if people have to continue to leverage out as much as they can to continue to facilitate payments, et cetera. Now we haven't heard exactly what all the specific lenders will do in terms of mortgage payments, if they'll allow us to postpone payments, if clients aren't working or just sort of pause and push it out. It would hopefully that is the case if that's if they have the capacity to do so. So we'll keep you updated going forward on all those specific items in terms of what they're planning to do. But right now being at just, just past the middle of March and so new to this COVID 19 pandemic, we are in sort of a sit and wait timeframe and they're working diligently behind the scenes to resolve or come up with solutions to alleviate sort of business risk. Because there's a lot of challenges with businesses and employees, etc. And also just consumer risk with being able to handle existing debt loads or payments and cash flow to be able to, which also trickles down to landlords paying their mortgage for the, potentially for the, for the tenant to be alleviated from the obligation to pay rent. I mean, there's so many different levels of this that we're figuring that out cash flow wise. On a positive note, with lowering interest rates for variable rate mortgages, you should see your mortgage payment reduce over the coming the coming weeks. I mean, there's been quite a few changes to the actual rates, so I think that it'll be very chaotic behind the scenes at the banking institutions to recalibrate and refigure all these things out. But you should get notification from your specific lender generally by a letter or some sort of communication to outline how that looks when it takes effect on all those different details. If you have any specific questions on your mortgage, your lender, what they're doing to ease ease the stress of these times, please reach out Email mattattparker ca. You can go to the website mattparker ca message back any of the channels that we're in and we're here to help. We're here to help alleviate any concerns and challenges. If you're still looking in the market and you're looking to purchase a property, rates are extremely low, so business is still operational. Lenders are still working. A lot of them have gone remote work, so a lot of their staff is working remotely. They're able to do that by utilizing technology they have in place. A lot of them have remote workers already, so that's a very good thing. The one thing that we may see in terms of in terms of securing financing is the appraiser's ability to get into properties. So if you need to get an appraisal done or you purchase a property and appraisals needed, I would get that done sooner than later just in case there are any issues with that going forward. Yeah. So we're here to help. Questions? Please send them our way. Best wishes to you and your family. We'll get through this together. Let me know what we can do to be of service and we'll talk to you soon. Thanks, bye. If you're like many of our clients, you have no idea if you can save money on your mortgage or build wealth from your home. Five minutes could save you thousands on your mortgage. With our innovative mortgage Management system, our will track your current mortgage and monitor changes in the market that could save you a ton of Money. Go to MattParker CA to join us and live a House Rich life. We are so grateful for our listeners on the House Rich Homeowner and want to keep producing content that you want to hear and will care of. Take love your feedback. Make sure to leave a review and subscribe to the podcast to help us grow the house rich community.