3 Strategies to Make the Rate Cut Work for You
Following yesterday's Federal Reserve announcement, this morning the Bank of Canada reduced its overnight rate target by 50 basis points (half a percent). This is the lowest it’s been since 2018, and the first rate cut in almost five years. Canadian financial institutions, including your bank, will decide how much of these savings to pass onto you. RBC was the first to lower its prime rate from 3.95% to 3.45% following the news, and other lenders are likely to follow suit.
1. Do you have a line of credit or variable rate mortgage?
Consider paying the same amount, even after your payments are lowered (ask your lender about pre-payment options specific to your mortgage). You’ll be debt-free faster and could potentially save thousands of dollars in interest. Continue to stay informed because these products typically have no/very low penalties, meaning you could lock in if and when rates bottom out.
2. Do you have a fixed-rate mortgage?
You're in good company; so do most Canadians, and you still have options even though this type of mortgage comes with a higher penalty, because that typically shrinks closer to the end of your term. Consider th an opportunity to refinance to a lower rate. It’s possible the savings could outweigh any penalty or potential costs, especially if you renewed in 2018. Contact me to find out with a free strategic financing review.
3. Are you purchasing in the near future?
Get advice from an expert. A mortgage broker can help find the right solution for you while taking advantage of the best terms available in the marketplace. I have access to over 60 lenders including the major banks. Book a free consultation to have your file prepositioned at calendly.com/laurenpye/vinegroup
Buyers with less than 20% down payment will be glad to know that government recently made changes to how Canadians qualify for insured mortgages. Starting April 6th, buyers will be able to qualify on terms that more closely reflect current market rates, while ensuring they can still afford their mortgage payments if rates increase by two percentage points - ie. the stress test will still exist, but should be a little less stressful. Changes for uninsured applications (20% down and all properties over $1 million) are also being considered.
Spring is right around the corner
A declining rate environment was expected for 2020, but COVID-19 has moved the timeline up and rates down more than anticipated. Spring is always a busy and competitive time for financing and this year will be no exception. A hot real estate market, combined with the continuously-adapting regulatory and economic climate, will keep borrowers and lenders on their toes.
The next Bank of Canada announcement is April 15, 2020. Follow me on social @laurenpye.ca for the latest on financing strategies, news, and updates that affect you.
I'd love to know if you found these strategies helpful or if you have other ideas. How do you plan to make this rate cut work for you? Please share in the comments below.