Looking to secure a mortgage? Now is the best time to negotiate
The Bank of Canada again held its influential overnight lending rate today at 1.75 per cent, signalling the continuation of a stable interest rate environment – and underlining that now may be the best time to negotiate a mortgage.
Why? We’ll get to that in a second.
First, the BoC held the rate for the fifth straight announcement – it’s been at 1.75 since October 2018 – citing growing evidence that the Canadian economic slowdown in late 2018 and early 2019 is now being followed by a pickup in the second quarter this year. Housing market indicators point to a more stable national market, albeit with continued weakness in some regions.
In addition, the Bank says, continued strong job growth suggests that businesses see the weakness in the past two quarters as temporary, with recent data supporting an increase in both consumer spending and exports in the second quarter, and it appears that overall growth in business investment has firmed.
“The Bank’s language indicates that things will need to change to the positive or negative in order to move from their current rate strategy,” says James Laird, co-founder of Ratehub Inc. and president of CanWise Financial. “Therefore, Canadians can expect a stable rate environment for the foreseeable future.
“This announcement should bring peace of mind to consumers currently in a variable rate mortgage because it is unlikely that the prime rate will increase anytime soon,” he adds. “Going forward, a decrease seems as likely as an increase, which is also good news if you’re in a variable rate.”
Canadians may also be able to take advantage of seasonality in the mortgage industry to score the best deal on their lending rate. Just like spring is known as traditionally the busy season in real estate, it’s also a very good time of year to secure a mortgage.
Ratehub.ca, for example, analyzed historical rate data from 2016 to 2019 to identify the best times of year for Canadians to lock in to a rate, or refinance an existing mortgage.
According to Ratehub.ca’s historical data on the best five-year fixed and variable rates, Canadians have access to the lowest rates during the spring homebuying season – between April and July – every year. The second most competitive time period for mortgage rates occurs between October and December.
A similar story played out in 2017 when the average best five-year fixed rate fell to 2.4 per cent from 3.32 per cent, and the average variable rate dropped from 2.09 per cent to 2.04 per cent.
A year later, 2018 proved that while a rising rate environment can override the benefits any spring mortgage deals, mortgage holders still benefited from certain promos. The average best five-year fixed rate increased from 2.94 per cent from January to March to 3.07 per cent, but the average best variable rate fell from 2.17 per cent to 1.96 per cent. Lenders actually slashed fixed rates over that period.
“Lenders and mortgage providers come out with their strongest promotions during the busy spring and summer homebuying season,” Laird says. “Regardless of the interest rate environment, springtime is when lenders are willing to make the smallest margins in order to win business.”
During this period, many lenders will choose at least one rate and term to price very aggressively in order to attract attention to all of their mortgage products. Lenders also come out with special promotion offers to incentivize borrowers to lock in a rate. Consumers can expect to see cash-back deals to help with closing costs and refinance fees. Some lenders offer extra-long rate holds during this period. For example, BMO is currently offering a 130-day rate hold. The “30-day quick close rate” is another promotion many lenders opt for – this is a discounted rate that applies if your mortgage is closing in the next 30 to 45 days.
It’s crucial that lenders remain competitive through the spring market, Ratehub says, to hit their annual mortgage volume targets. In most cases, lenders will hit their targets during the second quarter (April to June) and, as a result, tend to be less competitive with promotions during the latter half of the year.
Consumers will typically see rates fall again in October, in the lead up to Oct. 31, when all of Canada’s major banks end their fiscal year. Lenders that want to get an early start on their targets for the following year often come out with promotions during this time period.
Further benefiting the mortgage landscape for Canadians is that Canada’s big banks this week are reporting lower second quarter profits than expected.
“The poor results reported by Canada’s big banks in Q2 2019 could be good news for mortgage consumers,” Laird told Homes Publishing. “In light of these results, it would be unsurprising if the banks aggressively try to win mortgage business by offering lower rates to consumers or promotions to attract more business in the latter half of 2019.”