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Mortgage Minute 4: Mortgage Update and Social Distancing

We are now over a month into Social Distancing across most of the world. It will likely last a few more months. It has wreaked havoc on our mental health. It has caused a large number of layoffs, or reduced hours of work for others. The uncertainty is crushing!

Alberta lost 100,000 jobs in March and more are being lost in April. There are more government aids than normal, but even this may fall short of keeping everyone well taken care of. The Canada Emergency wage subsidy has been slow to launch but will help some business keep their employees and to stay in business.

The Bank of Canada in it’s April 15th 2020 announcement said that real economic activity was down 1-3 percent in the first quarter of the year and is expected to be down 15-30 percent in the second quarter that just started. This will be a deep recession, but hopefully a short one.

The Alberta government has doubled its infrastructure budget for the year to nearly 2 Billion dollars which will get some people back and working.

Over half a million Canadians have deferred mortgage payments. One lender recently told us they had over 100,000 of their customers reach out, and are nearly done working through the backlog. Most lenders are now able to process deferral requests through online banking or in the case of non-bank lenders, via their online portals. This is by far the most efficient mechanism to defer payments if you haven’t needed to yet, or do need to but haven’t yet.

There is some confusion over what a payment deferral is. Simply put, the payment is delayed. The interest is still charged each month, but instead of asking you to pay that interest, the bank or lender is adding it on top of your mortgage balance, effectively lending you the interest at the same rate as your mortgage. Your mortgage balance will be higher at the end of your payment deferral period, by the amount of the interest that would normally have been paid in that period, and then your mortgage amortization will continue as normal once it is over.

And of course, mortgage rates. The money markets that provide money and liquidity for mortgage financing were hit too. The usual correlation of the Canada bond rates and fixed mortgage rates broke. We saw fixed mortgage rates rise in the last half of March, but thanks to large injections by the government and relaxing of certain behind the scenes rules at CMHC, that has helped return the cost of mortgage financing to be closer to what was happening before the drop. We may see 2.49% 5-year fixed rates again in the coming weeks.

For those who are in existing mortgages with rates above 3%, and still employed, there may be an opportunity to replace your mortgage with a lower rate. Ask me about it in the question box below.

Homes are still being bought and sold. I had a client this week buy a home and he got $35,000 of the listing price. If you have been thinking about buying a home in the coming months, there will be some good deals. Some people still want to sell or need to sell, and builders still have inventory they need to unload. Price reductions have been happening, and more will likely happen over the next couple of months. Ask me about what this might look like for you.

But most importantly, I hope you are doing well. I hope you are still working, if you are not, know that my heart breaks for you, and for everyone who is suffering financially right now. Please stay safe. Stay healthy. Stay positive. We will get through this together, and there are good times in the future.

Ask me a question!

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April 16, 2020


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