Dropping interest rates could provide a small dash of consolation for some consumers sitting in isolation watching their retirement plans plummet with the markets.
For those with variable loans, renewing mortgages or considering refinancing, interest rates could indeed offer a measure of good news, according to mortgage specialist James Laird, co-founder of RateHub.ca and president of CanWise Financial.
“If you’re sitting there watching your stocks drop, the one thing you can do to ease the burden a little bit is at least lower your borrowing costs. So a lot of people are thinking about it,” said Laird.
Last Tuesday, Ratehub was reporting variable rates of 2.35 per cent to 2.75 per cent. (The fixed five-year rate was between 2.19 and 2.59 per cent.)
The Bank of Canada cut a full percentage point from its overnight rate this month to 0.75 per cent, the same level as Aug. 2017. That includes a surprise 50-basis-point emergency cut on March 13 as the economic impacts of the Coronavirus began hitting Canadian households with force.
The same day, it was announced that changes to the mortgage stress test that were supposed to take effect for insured mortgages had been suspended. Similar changes for uninsured mortgages that were being considered by the Office of the Superintendent of Financial Institutions have also been shelved for now.
“From a purely mortgage perspective, rates are really low so you can lock in a fixed rate for five years for a very low rate. So anyone whose renewal is coming up or who is thinking about refinancing, it’s actually a really good time to do that,” said Laird.
It appears consumers are already considering their options because, he said Ratehub’s traffic has been climbing.
Real estate experts anticipate housing sales will slow or stall in the coming days as people shy away from open houses and showings.
But Robert McLister of RateSpy.com said there will be more listings — which have not kept pace with demand through the first two months of the year — mainly due to fears about recession, job losses, mortgage defaults and a less liquid real estate market.
He also thinks rates will go lower, although McLister says the road to the floor likely won’t be a straight line — there’s volatility ahead.
“If we hit a recession, five-year fixed rates and variable rates could easily go sub-2 per cent,” he said.
Given the near-historic low rates it might be a good time to refinance if penalties and closing costs make sense.
“Assuming your penalty’s not too big, refinancing can make total sense for someone who needs lower payments, needs to take out equity, wants to add a secured line of credit or is in a position to materially reduce their interest expense,” said McLister.
The last time rates were lower and a five-year fixed was recorded at 1.91 per cent, was in late 2016 when oil hit $45 a barrel, he said.
University of Waterloo economist Jean-Paul Lam said the central bank still has room to cut and he expects another 50 basis points to follow.
“I think we’re going all the way to zero if not very close to zero,” he said last Wednesday.
But, because rates are already low, Lam said the mortgage deferrals that the big six banks promised last week as businesses shuttered in the COVID-19 crisis are likely more significant to many households.
“What Canadians need right now is basically some sort of delay for them to pay their mortgages or their line of credit because a lot of them will be cash strapped,” he said.
The pandemic’s damage will likely be compounded by the “significant negative shock in oil prices,” he added.
“We know that when oil prices fall as much as they’ve done in recent weeks this has a significant negative impact on the economy and they tend to be long lasting,” said Lam. “Business investment still hasn’t recovered in Alberta, for example, to the levels they were in 2016.”
It’s far too soon to predict how long this recovery will take in Canada, he said.
“I’m in the camp that thinks this shock is not only very severe but long lasting.”