How the coronavirus may affect your mortgage
Lenders are being overwhelmed with applications for home purchases, renewals, and refinancing.
We’ll continue updating this page with resources and information as new details emerge on how Canadian leaders and businesses are responding to COVID-19.
Multiple industries have been affected by the spread of the coronavirus, social distancing and city lockdowns. But the borrowing and lending industries have seen a recent boost in activity. Homeowners are examining their mortgage options in hopes of long-term benefits as interest rates drop.
The effect of COVID-19 on mortgage rates
It’s simple: a lower interest rate means lower repayments. The Bank of Canada has lowered the official policy interest rate by 0.50% three times in the month of March alone. This has driven interest rates on variable rate loans down to extremely low levels. Fixed rate loans are also very low now, with some lenders offering 2.59% to 2.84% rates. At this point, interest rates are expected to increase slightly, but it’s difficult for analysts to predict long term interest rate trends in these ever-changing times.
What low rates mean for homeowners
Many homeowners are weighing options to potentially capitalize on dropping rates by refinancing their mortgages. Even a quarter of a percentage difference in your interest rate could spell thousands in interest savings over the life of your loan. If you still owe money on your mortgage, it might be a good idea to look into locking in lower interest while the rates are in your favor.
What low rates mean for homebuyers
It may be a good time to buy on paper, but the economic climate as COVID-19 spreads nationwide has left some potential homebuyers uneasy. For one, many people are nervous about steady employment. And now, even attending open houses is not an option considering social-distancing measures. It is still possible to buy a house during these times, with many realtors and mortgage brokers working from home. Just make sure you allow extra time for communications and processing.
The effect of COVID-19 on lenders
Lenders are busier than normal these days. They are generally trying to keep up with increased demand for their services by processing new mortgages first, followed by renewals then refinancing. Therefore, make sure you count on application processing times being much longer than expected.
What demand means for homeowners and buyers
With lenders operating at capacity, you may have to wait hours to talk to a loan officer by phone, and weeks for your requests to be processed.
If you’re planning to buy or refinance, build in more time than usual for application approvals, returned calls and other business transactions. But with technology that allows digital signatures, online money transfers and easy digital file transfers, it’s possible to continue doing business from a safe social distance. Even communicating with a home inspector (who will likely be clad in a full hazmat suit while they inspect your perspective home) can all be done digitally. Keep in mind that with many government tax and other offices shuttered for the foreseeable future, you can expect closing to come more slowly.
What if a lender turns me away?
If a lender doesn’t accept your application, shop around for another bank, credit union or mortgage servicer. Especially as lenders struggle to return phone calls.
Take care with applying with too many lenders at once, however. Each application requires a hard pull on your credit, which can temporarily chip away at your credit score. Instead, keep your applications within a short window, so that all credit checks can count as one inquiry on your report. That acceptable “short window” can usually range from 14 – 45 days depending on which credit score model is being used.
Should I sell my house?
Maybe not. During the economic fallout of the coronavirus, fewer people are hunting for houses, and borrowers are waiting in long lines to get a mortgage. The good news is that real estate is still considered an essential service, so you can still get in touch with a realtor.
Just to keep business going, many realtors are opting for live, virtual tours where they’ll answer questions from perspective buyers as they walk through a house. So it is possible. Still, with signs pointing to a buyer’s market, you may need to opt for a lower asking price to keep your home competitive.
Compare mortgage lenders
As interest rates drop in the wake of COVID-19, it may be a good time to consider refinancing your mortgage. But with so many people looking to save where they can, expect long wait times for approvals, calls and closing.
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