• Thrive Mortgage Co.

Episode 36 - THIS BANK OF CANADA UPDATE COULD CHANGE REAL ESTATE FOR THE REMAINDER OF 2020


Alex McFadyen

What's up guys, welcome to another episode of your favourite Vancouver mortgage podcast. Today's episode is a little bit more on current events, something that's recently happened that is going to impact interest rates which is going to impact the market. We've tried to take a relatively difficult concept and simplify it. We're going to talk a little bit about the Bank of Canada ending an emergency pandemic program that was implemented in March just when the pandemic hit. We're also gonna talk a little bit about a new lender entering the broker channel.


What does that mean for you? But is that mean for a borrower in general? And what should you be looking for as a borrower trying to get your mortgage right now?


This episode is really gonna be talking about what happened recently as it pertains to fixed rates and the levers behind fixed rates. I know a lot of people are probably not interested in interest rates unless you're looking at refinancing or buying an investment.


Deryk Williamson

The main reason we wanted to touch on this is because it was a pretty big move, or adjustment that happened last week. The reason that we bring this up is a lot of people are predicting interest rates to be low for years. Some people think they're going to be low forever but are they going to continue to fall? Last week The Bank of Canada decided to stop purchasing Canadian mortgage bonds. Since the pandemic hit earlier, the Bank of Canada and our federal government decided to purchase Canadian mortgage bonds at a dramatic level, which dropped fixed interest rates. They flooded the market and they flooded our banks with very cheap money that the banks could lend. The banks could then lend out at a very low interest rate to borrowers such as ourselves and yourselves. Last week they decided to stop that bond purchasing program, which means that the money that they've flooded into the market is still there sitting with the banks and still has the ability to be lent out. Eventually this is going to be the move that is going to start interest rates rising. The amount of money that's in the market currently, there's still predictions that fixed rates could be low for 6-18 months. Nobody really knows when they will start to go up. It all kind of depends on what happens in our real estate markets if borrowing continues to move at a rapid pace but this program and the ending of this program is essentially something that's going to start the uphill climb of fixed interest rates.


Alex McFadyen

This is a lever which impacts fixed interest rates that we're talking about right now, not variable rates, We could see three months from now the program restart or reset.


Dean Lawton

Variable rates are tied to the prime lending rate and there is no indication the prime lending rate is going to go up. This move has really nothing to do with the prime lending rate in our country. It's definitely important to be clear that this is just fixed interest rates. We do have a lot of clients that we've been working with over the last six months that took variable rates as a strategy to potentially wait out the bottom of a fixed rate market and then look to lock into a fixed rate. This essentially has a lot of people thinking we have hit the rock bottom of fixed interest rates. So if there is any desire to lock in, it's something I would definitely talk to your broker about and look at your options.


Deryk Williamson

The Bank of Canada, two weeks ago held $9.3 billion worth of Canadian mortgage bonds. The strategy behind that is they buy up the bonds to basically provide capital money for our banks and financial institutions to then lend out at a very low cost. So now, the Bank of Canada has stopped that program. The banks are going to continue to lend money. As the money starts to dry up, and the supply has decreased, the costs could go up. When the supply drops, the cost of interest rates could go up. That could be a year down the road or that could be three years down the road.


Dean Lawton

Just a couple things that could go against what we're saying here is we could see another flood of investment into the the bonds from other sources than the government. That could happen where we could see an influx of capital going back into the bonds and and then just keeping the liquidity in the same position that we're in. That could also delay the likelihood of seeing the rates go up.


Alex McFadyen

One of the number one ways that Canadians are still able to continue spending money and still have their livelihood is because of real estate. Whether it's refinancing for cheap money, being able to buy at a low cost, or literally people who work and live and surround the real estate industry as a whole, we're seeing a lot of people being able to take advantage of it. If we see that start to slow down, and we see COVID start to come back, we could be seeing a circumstance in the next three to four months where this program is is reinstated.


Dean Lawton

What does this mean for borrowers and anyone looking to get into the market or make a change to their existing mortgage?


Deryk Williamson

We probably probably have hit a potential floor for fixed interest rates. I was reading an article and it said the only other reason that we would see another dramatic drop in fixed interest rates is if we have a second wave of COVID that would cause a lockdown, which is another economic crumble. What we're probably projected to see is pretty dramatic rate drops every week or two for the last six months, that could start to dry up. We likely might not see rates continue to fall. Eventually we might see fixed rates starting to trickle up. If there's anybody on the fence, this would be the time to 100% reach out with an application. It's a 15 minute process to get started. Even if you're not ready to do anything right now we can lock in and hold over for up to 120 days. Whether you're getting a pre-approval or you're thinking about refinancing or switching to a different lender, now's a good time to have a conversation with your mortgage broker. Get that rate locked in just because nobody really holds that crystal ball.


Alex McFadyen

We've seen a slight reduction in the amount of activity in the last couple of weeks here in the end of October, 2020. It appears that a lot of people are quietly waiting for more inventory. It seems to be the same thing with investors to which I say you shouldn't stop the process of being prepared to get into the market. We've talked about this a lot in the past, whether you're investor or homebuyer you should always have your preparation. Be prepared so that if the market does slow down, opportunities are going to come back again, and we're going to seize opportunities. Make sure to take advantage of that. The variable rate still continues to be a great option.


Dean Lawton

We have had a lot of clients that took a variable rate as a strategy to wait for the fixed rates to hit rock bottom. Most variable rate mortgages in our country do allow you to lock in at any time for the best available fixed rate term, that's compared to the remaining years in your term. I wouldn't be trigger happy and do that if I were you to just lock into whatever that product is. Definitely reach out, I just want to reiterate, definitely reach out to your broker and figure out what else is available on the market. There are a lot of incentives to consider before just locking in with your existing lender.


Deryk Williamson

We can help you guys negotiate. Even if you're going to stay with that lender, we can help you guys negotiate on rates if it comes down to that. Every Canadian has probably heard about the mortgage rate drops. Most people can probably benefit from it if you own real estate but very few people actually reach out or take action to do something and this is not going to be around forever. In a couple years, we could be back up at 3.5% rates like we were two years ago. It's such a dramatic difference that if you're having the slightest thought about this in the back of your mind, reach out as soon as you can.


Alex McFadyen

There's been some rumors for the past week, maybe two weeks now about a new bank enter entering the mortgage broker channel. I want to be specific and what that means. As a mortgage broker, we can take your mortgage application to any number of different institutions. Now, in true brokering fashion, we shouldn't be limited by any bank or institution. There are certain banks or institutions that we have ,quote unquote, broker products. We get paid by these lenders, where some other ones choose not to pay us, in which case there's a fee involved. There aren't as many of those thankfully, one of those such banks is HSBC. HSBC left, it used to be in the mortgage broker channel up until about 2010. For a lot of reasons, they decided to leave the channel in that year and have been out ever since now. The rumor is not 100% confirmed. We can be pretty clear to say it's very likely that it'll be coming back in, more specifically, it's coming back with only high level Dominion lending center brokerages from what we understand. That's fantastic because we're part of Dominion lending centres. It's more products and more options for consumers.


Deryk Williamson

I think the fact that HSBC was in the broker channel, they left, and now they're returning really says something about the growing popularity of mortgage brokers. They can obviously see that they're missing out on a huge slate of typically very clean business that comes from the mortgage broker world. It's good to see that they're coming back in. HSBC has been one of the most aggressive lenders, usually a couple times a year in regards to interest rates they were on the news for about three months at the beginning of the pandemic. They've always kind of been been a leader in interest rate now. There's mixed reviews in regards to HSBC around customer service, their products, and penalties but obviously that's what we're here for. We're here to help you guys navigate that. At the end of the day, the more product offerings the better.


Dean Lawton

it's a good thing for consumers first and foremost. If there's any lender trying to get back into the market, from a mortgage broker channel perspective, that's just going to be good for consumers. It means they're going to come in with more competition that's going to make everyone better. Competition is always going to be the best for consumers. This is nothing but positive both for the broker channel and consumers, and most importantly, just the products that they offer. It will be really nice to see if some of the products that we know they offer through the branch and their banking channels, if they bring those to our our channel, that could be really good for other lenders looking to maybe sharpen their pencils on their guidelines.


Alex McFadyen

Why would a lender stop allowing mortgage brokers to submit directly to and then vice versa? Why would they come back in? We don't know exactly why HSBC would do this. We can talk a little bit about why a lender would want to work and partner with mortgage brokers and in particular, how they look at that. Its efficiency and the level of work. When a consumer comes to a qualified and good mortgage broker that has access to a variety of institutions, the quality of the application that comes to the bank is substantially higher. It's much better prepared in most circumstances. If you look at it from a business perspective, what would you rather have, 100,000 applications where 1% of those people are actually funding a mortgage with you or 10,000 applications where 50% are funding. Although we're making up the statistics for the sake of conversation, it's a good thing for the lender and it's a better thing for the consumer. These guys want to lend out their money more if you're working with a mortgage broker.


Dean Lawton

I think it's also important to note that how many Canadians were getting their mortgage from a mortgage broker in 2010 compared to now is completely different. It's a totally different landscape. There's a lot more Canadians choosing to go with a mortgage broker. In fact, we're seeing almost 33% of Canadians get their mortgage from a broker. I don't have that exact stat where we were in 2010 but it was nowhere near that, I can guarantee you that. That just shows a lot of confidence that banks can enter the channel to get better quality and more efficient deals on their part. Typically, we're eliminating a number of employees on there and from the process of dealing with a broker compared to dealing with a client directly, it's overall a lot more efficient for the banks. Clearly there's a demand to get your mortgage from a broker.


Alex McFadyen

As someone who's working with a mortgage broker, you should be asking your broker which lenders they have access to. Some brokers don't have access to most lenders. Do they have the key lenders? If so, how much are they doing with those lenders? A lot of institutions actually provide you with better options, solutions, timelines, and so forth for efficiency and for doing a certain amount of business. We feel confident talking about it because we're we do quite well in that arena. It's a question that you should be asking.


Deryk Williamson

There's a ton of different options out there. What is the size of the brokerage? Within Dominion lending centres, there's hundreds of different franchises, all different sizes and scales. The more volume that runs through that particular brokerage that your mortgage brokers sets with means that they're going to be getting priority access to lenders, best interest rates, promotions, and quick turnaround times.


Alex McFadyen

I think we should do a podcast episode on just that piece in itself to help educate people what types of things that they're going to pick up and what types of things they're going to learn from us in regards to going forward and getting the best options. So whether you're investor, a homeowner, or a homebuyer, make sure to talk to your neighbor, let them know that they should be having this conversation with a mortgage broker who's going to look after them and if that's us, fantastic. We look forward to serving you so thanks again for listening to the episode guys. We'll talk to you very soon.


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