Just halfway through the month of March, the Bank of Canada (BoC) has dropped its overnight rate a total of 100 basis points, from 1.75% just last week to 0.75% as of Friday. This was a very large drop and while the first 50bps was expected, the latest one was unexpected. Having said that, this may be good news for mortgage shoppers as lender rates should continue to drop in response to the recent policy changes.
What does this mean for the spring market?
The goal of this drop is to increase interest in potential home buyers by lowering the cost of borrowing and potentially increasing affordability. Affordability may increase because it is also expected that the mortgage stress test rate may drop again below the 5.19% mark. This can all be very good news for first time home buyers who were looking to enter the market for the first time, as they will most likely be able to afford a higher priced mortgage/home because of these drops.
Some further reading
While the news is still coming and we should have a better idea exactly how lenders will react this week, here are some recent articles to learn more:
This past Friday, the Bank of Canada officially announced that it will be lowering its overnight rate to 0.75% effective today. This unscheduled rate drop was a proactive decision made as a result of the recent COVID-19 pandemic and its negative shock to the economy.
The recent fears around the coronavirus has had negative consequences for the Canadian economy. The Bank of Canada cut its rate for a second time 50 basis points and the mortgage “stress test” changes due to come into effect on April 6 have been put on hold.
The BoC lowered its rate to 0.75% on Friday, a drop that is likely to impact mortgage rates further. As rates decline, Canadians with variable rate mortgages can expect to feel this impact too, with annual savings on their mortgage balance.
In the midst of the coronavirus outbreak, the Bank of Canada lowered rates again and is ready to make further rate cuts as needed. Acting outside of its regular dates for rate announcements, the BoC plans to provide a full economic outlook at its scheduled meeting on April 15.
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