BREAKING Mortgage News | Coronavirus Causes Drop In Mortgage Rates!

Posted by Real Estate Partners REPYYC on Wednesday, March 4th, 2020 at 8:27am

Breaking news from our mortgage partner Renee Huse - Owner of Spire mortgages https://www.spiremortgage.ca

Effective this morning the Bank of Canada has decreased their overnight lending rate by 50 basis points or .5%.  Although many expected a rate drop in late 2020, this was certainly a more substantial drop than anticipated.  This drop comes on the back of general weakness in the global economy due to the Coronavirus or COVID-19 outbreak and the .50% drop by the Federal Reserve yesterday, March 3rd 2020.

Before today, the last move to the Bank Prime Rate was in October of 2018.    

The media is full of information (some correct and some incorrect) so we wanted to take some time to break down exactly how this effects mortgages and our clients in the Calgary, Residential Real Estate Market.  

Spire Mortgages

First, it’s important to remember that the overnight lending rate effects variable rate mortgages and home equity lines of credit. There is a misconception in the market that the overnight lending rate effects five-year, fixed rate mortgages.  It’s actually the long-term bond market that drives fixed rate mortgages.

As much as this drop is affecting the 5 year, variable rate mortgages, the bond market has also taken a serious hit the last 3 months.  Fixed rate mortgages have decreased as well.  

To put this into perspective, a borrower with a $300,000 mortgage and a variable rate will receive a reduction in payments of approximately $75 per month.  

Combining this change in the mortgage market with the small changes happening to the stress test on April 6th, there are some great opportunities for Calgary home buyers.  

As a reminder, the upcoming April 6th changes mean that Calgary Home Buyers with less than 20% down will qualify at an average interest rate plus 2%, instead of the current Benchmark rate of 5.19%.

Based on assumptions, this is a -0.50% difference from the current qualifying rate and will increase purchasing power for the average Calgarian borrower by $20,000 - $30,000.

It means that if you have an average household income of $111,000 per year (the average in Calgary in 2018), an no other debt, you qualify for a home purchase price $20,000 higher.

Ironically, if you have debt payments of between $500-$1,000 per month your purchasing power is actually increased by slightly more, $25,000 to $30,000.

Lots of moving parts in today’s Calgary Real Estate Market means the home buyers have to be working with a Real Estate Professionals that are actively transacting in the market and well versed about the impending changes! 

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Real Estate Partners Team take on the Corona virus and it's impact on the Calgary real estate market: 

In terms of the real estate market, the effects of the Corona Virus locally on our real estate market are hard to predict, while people may be less willing to go out and risk exposure through many of your more common activities (dinner, movies, sporting events, etc) it's unlikely that buyers will stop shopping for homes on a large scale, and with a rate drop, as mentioned by MMG buyers may soon be more incentivized to get out and make the most of the lower rates which will increase their purchasing power. Still, we advise caution to all of our clients, the markets have taken a hit recently and there are swirling rumors and talks of a global recession, and with the Alberta economy still recovering, our market could potentially face some challenges if the global economy begins to crash. 

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