What mortgage owners need to know about the Bank of Canada’s second rate pause

The Bank of Canada’s decision to hold rates for a second consecutive time should act as a stabilizing force to Canada’s mortgage market, according to experts.

Canada’s central bank elected to hold the overnight rate at 4.5 per cent Wednesday, reaffirming economists’ expectations. Last month, the Bank of Canada became the first major central bank to pause interest rate hikes.

“For many mortgage holders, what this actually means is that there’s likely to be a period of stability in the next little bit, before things [interest rates] start coming down,” Leah Zlatkin, a mortgage broker and expert with LowestRates.ca, said in an interview on Wednesday.

Zlatkin said she is projecting a two-year time period before rates begin to normalize.

“This will cause stable mortgage rates and home values ​​and allow more accurate forecasting for the remainder of the year,” James Laird, the co-chief executive officer of Ratehub.ca and president of CanWise Mortgage Lender, said in a statement Wednesday.

Amid the current conditions, Zlatkin said she recommends a “head in the sand” strategy, where people could benefit from waiting a few years to lock in a lower interest rate on their mortality.

“If you’ve got a variable rate, you can sort of rest easy knowing that things are going to be stable for a little bit. If you’re feeling that pressure, if you’re feeling that pain, well it might be time to start looking at our short-term fixed rate to ride out the rest of the storm,” she said.

For most clients, Zlatkin said she recommends looking at a one or two-year fixed mortgage product, depending on the timeline.

“For 97 per cent of clients, I’m recommending a two-year fixed [mortgage] or a three-year fixed, or even a one-year fixed. So short-term fixed rates are where to go,” she said.

IMPACT ON MORTGAGE PRODUCTS 

Following the central bank’s announcement, fixed rates will be unaffected, Laird said.

“This announcement did not surprise markets, so bond yields are steady, which means we should not expect any changes to fixed rates based on this morning’s announcement,” he said.

However, people looking for a fixed-rate mortgage over the next few months should move to get pre-approved, according to Laird.

“This [pre-approval] will protect them from any unexpected rate increases, but still give them access to any lower rate available when they apply,” he said.

Additionally, the move to hold interest rates will be welcomed by variable mortgage owners and those with a home equity line of credit, Laird said.

HOUSING MARKET IMPACT

Zlatkin said the Bank of Canada’s decision to hold rates may increase interest in the housing market, but prices are unlikely to rise to levels from last year.

“We’ve seen across Canada about an 18 per cent drop in real estate prices over the last year. And so I think things might start coming up a little bit,” she said.

“But that really requires an increased supply of houses and an increased demand of people looking to go get houses. And if those two things line up properly, then yes, we can start to see those numbers creeping up.”

First-time homebuyers are often the “most skittish” during periods of volatility, Zlatkin said. However, the central bank’s decision to hold interest rates a second time will lead to more stable conditions and could spur demand.

“The reality is that right now, many of those people who are looking for that stability and who do want to see things sort of level out, those people are probably going to be hitting the market in drives,” she said.

Additionally, more units could be entering the market this spring, according to Zlatkin.

“I’m getting lots and lots of clients who are calling me asking me about pre-approvals, who are asking me if their pre-approvals are still valid, and who are planning on going out and going shopping,” she said.

Source: https://www.bnnbloomberg.ca/what-mortgage-owners-need-to-know-about-the-bank-of-canada-s-second-rate-pause-1.190690