News & Resources

Fixed Mortgage Rates Trend Lower as COVID-19 Fears Ease

April 29, 2020
3 mins
Happy couple in modern living room

Despite the COVID-19 pandemic raging on, fear in the financial markets is easing. And that’s exactly what new borrowers want to hear.

A host of lenders, including many of the big banks, have been dropping their mortgage rates in recent weeks.

This follows a run-up in mortgage rates in late March, a time when economic panic led most lenders to price “risk premiums” into their rates. The new downtrend is also indicative of falling market rates (e.g., bond yields), which lower funding costs for mortgage lenders.

Within the last week we’ve seen rate cuts from RBC, CIBC, as well as from a host of other non-bank mortgage lenders. The previous week saw rate drops from BMO, CIBC and HSBC.

Among other things, the decline in fixed rates reflects the federal government’s unparalleled measures to buy fixed-income securities, which in turn creates more buying interest (liquidity) in the mortgage funding market. That pushes down costs for lenders.

Consumers have been the winners in all of this. Uninsured 5-year fixed rates are now below 2.69% for the first time in weeks. Consider that in March, those same rates were over 3% at the big banks.

Still Room for Rates to Fall

A plain vanilla uninsured 5-year fixed rate is now more than 225 basis points above the 5-year bond yield. In a normal functioning market, that spread would be closer to 150 bps. Seventy-five bps is a hefty difference in borrowing costs over five years.

It’s going to take time for these “risk premiums,” for lack of a better term, to subside.

In the meantime, lender costs will stay elevated. Albeit, lenders do have enough profit margin to discount fixed rates further, so we expect some pencil-sharpening in May, other things equal.

Should rates fall back to within that 150-bps spread from the 5-year bond yield, and bond yields remain stable, a new borrower with a $300,000 5-year fixed could save up to $17,000+ in interest over five years. That’s equivalent to almost a year of mortgage payments.

RATESDOTCA Team

The RATESDOTCA editorial team are experienced writers focused on sharing stories and bringing you the latest news in insurance and personal finance. Our goal is to provide Canadians with the information and resources they need to make better insurance and financial decisions.

Latest life insurance articles

Why life insurance should be part of estate planning for new parents
Life insurance is one of the best ways new parents can protect their family and help loved ones in the event of your unexpected death.
Learn More
5 mins read
10 Myths About Life Insurance Busted – Some May Surprise You
You may be young with no kids and no mortgage. Life insurance is for someone older, who has dependents right? Wrong. Let’s debunk life insurance myths and learn why everyone needs some form of coverage.
Learn More
6 mins read
Will a Life Insurance Policy Cover Death Due to COVID-19?
Demand for life insurance may be on the rise during the pandemic as more Canadians consider buying a policy or reviewing ones they already have. If you’re thinking of applying for a policy, here are a few things to keep in mind.
Learn More
4 mins read

Subscribe to our newsletter

Stay on top of our latest offers, relevant news and tips!

Thanks for joining!

You'll be hearing from us shortly - stay tuned.