In what was described by one broker as “the most significant mortgage interest rate news in ten years,” the BoC’s surprise decision to axe its overnight rate target may have an unexpected effect on one type of mortgage product.
“I personally think if we stay where we are, I think you might see five year mortgage rates drop to 2.69 per cent and I’m talking about non-discounted rates,” Brian Matthey of Verico the Mortgage Professionals told MortgageBrokerNews.ca. “It’s going to make the fixed rate from a qualification standpoint very attractive compared to the variable.”
The Bank of Canada announced Wednesday that it has changed its target for the overnight rate for the first time in over four years, dropping it by one-quarter of a percent to ¾ per cent.
The reason for the cut was due to sharp declines in oil prices, which are expected to result in negative growth and inflation for the country.
And while the initial inkling may be that the news will make for an attractive time to take on a variable rate mortgage, brokers aren’t completely sold.
For his part Gord McCallum of First Foundation echoes Matthey’s sentiments, believing the market may be in for record-low five year fixed rates.
“I wouldn’t be surprised if we see a five year at 2.5 per cent,” McCallum told MortgageBrokerNews.ca. “No, variable won’t necessarily be the most attractive option for clients; I think some of that has to do with the fact that it’s easier to qualify for a five year fixed and there is enough of a perspective out there that people who are qualifying right now and they’re just barely qualifying they don’t want to take that extra risk.”
Indeed, with rates expected to drop across the board, brokers are in a position to school clients on the ins and outs of the products available.
“Everybody’s got a good rate right now and the battleground is in the fine print – what you get for that rate is going to be very different from institution to institution,” McCallum said.
BoC interest rate a surprise?