Home buyers need to watch rates

Uncertainty is everywhere in the financial world these days as the COVID-19 pandemic spreads, and that’s translating into big swings in mortgage rates and challenges in how to navigate borrowing for a home.

Given the lack of economic clarity, brokers says it’s important to keep a close eye on rates if you’re in the market, since they could continue to fluctuate widely and banks take different approaches to fixed and variable rates.

Fixed rates started to fall noticeably in late February as the bond market reacted to the economic threat of the virus. Then in early March, the Bank of Canada followed the U.S. Federal Reserve in slashing rates by 50 basis points, and then did so again in mid-March and added another taper at the end of the month.

“What we saw in the past, let’s just say three weeks, was a unprecedented accumulative drop in that key rate of over one and a half per cent,” said Toma Sojonky, a mortgage adviser in Vancouver.

The key central bank rate cut, which has pushed the prime rate from 3.95 per cent to 2.45 per cent, has made variable rates lower and mortgages more affordable.

“This could be good news for one element of the Canadians’ pocketbook, but it’s reflective of what of course is going on economically,” said Sojonky.

Banks haven’t passed on the full reduction of the prime rate in variable mortgages though because of the economic uncertainty and concerns about their liquidity, or the amount of money they have to lend out, as Canadians deposit fewer paycheques.

The increasingly cloudy economic picture that has pushed the prime rate down has also led banks to reverse their cuts to fixed rates and instead push them up, even to levels that were higher than when the crisis began.