Someone asked me the other day. They said “Pete, why are mortgage rates going up when the Bank of Canada is bringing rates down?” I am going to answer that question for you and a couple more with Scott Grubbe.
I want to talk to Scott a little bit about what’s going on in the mortgage world because as we know the economy is experiencing some ups and downs and primarily downs in the last little while, and it’s affecting mortgage rates and it’s affecting mortgage situations.
So here is my first question. It looks like the economy is experiencing some serious downturns and the Bank of Canada has been dropping its rates, but we’re seeing mortgage rates going up.
Scott: Yeah. It’s kind of the opposite of what we’d expect. Usually when the economy slows down, the rates go down. So, the rates did go down at first, but the banks reacted. They’re a little worried about people drawing on their HELOCS (Home equity lines of credits) and cashing in GIC’s.
So there is a concern that they wouldn’t have enough money to fund all of the mortgages. So they increased the rates a little bit as a way of turning off the taps or slowing down the applications for more mortgages.
You’ve got to have a certain liquidity amount for the Bank of Canada.
Pete: What should we expect in the next couple of months, the next four months? What are you looking at?
Scott: So these little rate increases… we’re not talking about big numbers. Like we’re back up in the 3% where we were in the 2% for a while. That’ll be the norm for a month or two and then we’re expecting them to go back down.
Once the liquidity issue gets resolved, the government has implemented some new stuff on the back end for that and they’re also getting over their fears of default payments and people missing mortgage payments because of everything that’s going on.
So, the government has introduced this six month deferral program which is helping. To qualify for it, you need to call your bank. Every bank is treating it differently. I have heard of some banks that it’s as simple as checking off a box and getting it. Some banks are asking questions and looking for the people that really need it.
If you don’t really need it, then maybe just wait and let the people that really need it get through on the phones first because the banks are over capacity on these phone calls. The wait times are four or five hours easily on some of the lenders.
Pete: What about if you’re a landlord, though? You’ve got a couple rental properties and your tenants aren’t paying rent. Does the deferral program still apply to those, too?
Scott: Yeah. So if you’re a landlord you can call your bank and apply for it and there is a good chance they’ll approve it. So talk to your tenants. If they’re having problems, work something out with them. Lower their payments. You are still responsible for the interest. It’s not a payment holiday.
If you’re using this program, that interest is going to accumulate and get tacked on and you will have to pay it back. So it’s something to be aware of.
If you defer six payments, they’re just deferred. I mean, they’re basically tacked onto the end of your mortgage. So instead of being done in twenty-five years, you’ll be done in twenty-five and half years – is what I expect to happen. In a lot of cases or in most cases, they’re going to increase your payment after the six months. So, with the program, expect your monthly payment to go up a touch.
Pete: Scott, as usual, thank you so much for answering these questions for us. If people have more direct questions, where can they get hold of you? What’s the best way?
Scott: Yeah. My cell phone number is 587-433-8329. You can give me a call. You can check me out at scottgrubbe.ca.
I’d love to chat. If your mortgage is coming up for renewal or if you’re looking at buying or moving, selling or all of that stuff, I’d love to help you with your mortgage and serve you in that way.
Pete: Sounds awesome. Thanks, Scott. I really appreciate your time.
If you have any other questions or would like some more information from me, call or text me at 403-818-7310.