How COVID-19 is Affecting Mortgage Rates in Ontario
It’s no secret that mortgage rates have been at an all-time low for quite some time. That’s what kept the housing market alive and well. Lower interest rates meant home buyers could borrow larger mortgage amounts—and that’s exactly what was needed to keep up with the skyrocketing prices of homes across Ontario.
Then coronavirus hit. The world came to a screeching halt. Many people lost their jobs, forcing them into dyer straights financially. Even with lower mortgage rates, families struggled to make ends meet.
That’s when the government stepped in with its “payment deferrals.” Canada.ca defines a mortgage deferral as an agreement between you and your financial institution, which allows you to delay your mortgage payments for a defined period of time.
Among other eligibility requirements, you may qualify for a mortgage deferral if: a) you, or any member of your family, are unemployed due to COVID-19, or b) you, or any member of your family, experience a substantial reduction in income due to COVID-19.
So now we have large mortgages leant out at low interest rates and homeowners who aren’t paying back the debt.
What does this mean for the future of mortgage rates?
Mortgage Rates in 2021 & Beyond
The Bank of Canada (BoC) just announced that rates will remain low until 2023. “The Governing Council will hold the policy interest rate at the effective lower bound until economic slack is absorbed,” according to the Bank’s statement. “In our current projection, this does not happen until into 2023.”
In March, the BoC lowered its policy rate at 0.25%, and that’s where it’s going to stay for the next two years.
That’s great news for wannabe homebuyers, as this news affects fixed and variable mortgage rates.
Fixed rates could continue to fall even lower. Variable rate holders can also rest easy—at least for the next two years—knowing their rates won’t go up.
Some economists are saying these ultra-low rates will remain beyond 2023.
Is Now the Time to Buy a House?
Not necessarily. Some things haven’t changed just because we’re living through a pandemic. Just because interest rates are low, doesn’t mean you should rush out to buy up as much real estate as you can get your hands on.
According to a recent survey by Credit Canada, one in four Canadians (24%) have been relying on CERB since losing their jobs due to COVID-19. Another 9% have been using payment deferrals as a means to keep their heads above water. The same study revealed that nearly 40% of those polled said they have no idea what they’re going to do when government support runs out.
If you’re among those struggling to make ends meet due to COVID-related unemployment, then no, you shouldn’t be buying a house. “But the rates are so low, how can I afford not to get into the market?” Your financial stability relies on much more than a lower mortgage interest rate.
First, Check Your Debt
Statistics Canada claims the national mortgage debt to GDP ratio exceeded 84%, an all-time high, in Q2 2020. According to Better Dwelling, “This indicates a huge dependence on debt-driven growth, which has never historically ended well.”
The Credit Canada survey also revealed that only 2% of those currently relying on financial supports are planning to seek professional debt management help once relief programs stop.
As we descend into the “second wave” of COVID-19, it’s clear that challenging times still lie ahead. The job market is uncertain. Government support programs will wane. Experts predict that unless consumer properly manage their finances, a rise in delinquencies and insolvencies will surely occur into 2021.
Be smart with your finances. Talk to a professional financial advisor to learn about your options and set goals you can successfully achieve. Call today for a free consult a Dennis Financial rep is standing by to help.