As your local Kamloops mortgage broker, let’s break down the impending impact of the recent 25bps cut by the Bank of Canada. This is not just a mere adjustment but a strategic move to initiate an easing cycle. This cut benefits borrowers, who can now access loans at more favourable rates. This move is also expected to revitalize the real estate market, which has been in a lull.
What can we expect to see?
More loan demand
An increase in demand will not just be a possibility but a reality. It will stem from easier qualification, more purchasing power, improved homebuyer sentiment, pent-up demand, FOMO, increased investor interest, economic stimulus and more rate-driven refinances, opening up opportunities for mortgage professionals and real estate market participants.
While a quarter-point drop may not lead to an immediate deluge of mortgage applications, it will certainly be more than today’s sprinkle. Assuming no major re-inflation, and if history is a guide, we can expect mortgage growth to climb from its current rate of 3.33% to its 10-year average of 6.25% within 18 months, more or less.
More floaters
A few more dovish inflation prints should seal the deal for multiple rate cuts, giving the green light to more variable-rate borrowing.
Adjustable-rate lenders, this is your time to shine versus the fixed-payment variable competition. With the potential rise in variable-rate borrowing, more borrowers than usual could opt for floating payments that deliver payment relief, giving you a chance to showcase your offerings and strategies.
Better short-term rates
Pricing on short terms will finally start improving. It’s only a matter of time before we see uninsured nationally available one- and two-year rates in the 5s again.
A dip in posted short-term rates is a real possibility— and mortgage pros know what that means: heftier fixed-rate prepayment penalties.
Assuming they qualify, folks who need to break fixed mortgages to refinance could find closing costs far less pleasant in the months ahead.
Less panic over renewal risk
Many have fretted over Canada’s “renewal cliff“ for over a year. If the forward market’s outlook (a 175+ bps drop in prime over the next few years) holds, that cliff won’t be so terrifying.
Though there’s still financial strain on the horizon, it likely won’t trigger the default wave some feared—particularly with:
- federally-mandated mortgage relief, like re-amortization at renewal
- 4-5% annual income growth
- a liquid housing market to sell into in most regions.
There will continue to be more pain in the non-federally regulated market, where lenders aren’t as accommodating to borrowers in a jam. Regrettably, many more Canadians are subjected to this pain thanks to stricter qualifying regs at FRFIs (Federally Regulated Financial Institutions).
More concern about home price inflation
Home values have been consolidating for two years despite the benchmark prime rate at a 23-year high and record unaffordability. Assuming rates keep sliding and the bottom doesn’t fall out on employment or immigration, it’s hard not to imagine a pop in home prices before year-end.
More early renewal offers
Given the abnormally high number of renewals and refinances ahead, expect lenders to intensify their retention efforts even more. Given the low-volume environment, they’re already trying harder than ever to retain clients.
Among other things, that means more early-renewal offers. These offers will be more frequent and happen earlier, given that the Liberals’ mortgage charter mandates “contacting homeowners four to six months in advance of their mortgage renewal to inform them of their renewal options.“
Whether you are in the position of an upcoming renewal, purchasing or seeking to alleviate financial strain with a refinance, discussing your options with a mortgage professional will save you money and stress. Let’s talk today.
(2024). 9 Ways the Rate Cut Fairy Could Shake Things Up. Mortgage Logic News. https://www.mortgagelogic.news/rate-cut-fairy-en-route/
