COVID-19 has created challenges for almost every industry, and the mortgage industry is no exception. However, low interest rates and increased use of technology have allowed mortgage companies to weather the COVID-19 disruptions with relative ease.
Lori MacDonald, a mortgage broker with The Mortgage Group in Charlottetown, P.E.I., noted the positive impact of lower interest rates before restrictions began.
“Any drop in interest rates favours the housing market and we usually see an uptick in mortgage activity, especially purchases. Refinances are usually an active part of the market and are steady. Many people are taking advantage of the lower rates on renewals and transferring to other lenders for enhanced product features and/or rates,” said MacDonald.
“Mortgage rates are indeed low, and they were trending lower even before COVID-19.”
There are two types of mortgage interest rates – fixed and variable rates, she explains. Fixed rates are based on the bond market and variable rates are based on the Bank of Canada’s overnight rate, which is the rate that banks and lenders pay to borrow money.
Simply put, the relationship between bonds and fixed mortgage rates changes with market conditions. Recent events affected bond yields and now fixed rates are lower. As for variable rates, when the Bank of Canada lowers its rate, lenders usually follow suit.
“COVID has really impacted the economy and rates have dropped. Today, five-year fixed rates are sitting at 2.39 per cent. Variable rates are between 2.2 to 2.6 per cent,” said MacDonald.
Hot housing market
PEI saw an uptick in both sold properties and new listings earlier this year; however, MacDonald noted changes after restrictions began.
“We saw an immediate impact on housing purchases but not as much of a drop as in the rest of Canada. Those purchases and refinances that were already ongoing when the social distancing restrictions were implemented were completed,” she says.
MLS sales have slowed, but other market activities have increased, such as refinances for debt consolidation and home improvements as well as switches and transfers – all due to lower rates and improved affordability.
“We don’t know yet the true impact of COVID-19, but the trend up will likely continue, but a slower pace. The top concerns for buyers here are lack of supply and that our tourism industry will be negatively impacted this year,” she says.
On a positive note, P.E.I. ranks high in livability factors.
“Our communities are safe with a lifestyle that many envy. New industries are emerging in the alternative energy field, and we have excellent support for small business, which all adds up to a stable economy,” said MacDonald.
MacDonald noted that she adapted to the restrictions fairly easily.
“I work from home, so it wasn’t too challenging. I reached out to my clients to keep them informed about the economy and what was happening with mortgages and with COVID in our local area. And I still kept up my networking as best I could by reaching out to my partners to share information,” she said.
“It was also a good time for me to catch up on the new technology our company has just launched, which will make the mortgage process much smoother for clients as we move forward.”
'All-time low'
In Nova Scotia, especially in the Annapolis Valley, the trend is also up, according to Heather Schrader, a mortgage broker with Turner Mortgage Inc in New Minas, N.S.
“Despite the physical distancing, the Valley real estate market is hot,” she says. “A number of recent listings have sold at full asking price in the last week. It’s a great sign for our local market.”
Schrader also credits the low interest rates for the positive trend.
“The five-year fixed rates are near an all-time low - currently under 2.5 per cent. In May 2015, we had fantastic rates as well (2.69 per cent). So, we have been in a low rate environment for most of the last five to eight years, with a few six-month periods of rates going up to 3.99 per cent temporarily,” said Schrader.
That’s prompted a large number of transfers happening right now by clients who did a mortgage in 2018 and 2019 at a rate of 3.69 per cent.
“They are often saving an astronomical amount of money by transferring their mortgage to today's fixed rate. We have saved some clients over $15,000 and knocked more than a year off the life of their mortgage amortization,” said Schrader.
Schrader even sees positive change amid the COVID-19 difficulties.
“We are blessed with technology in our business. We do mortgages across the country, so we are used to doing business over email and phone. As a silver lining, the banks and lenders have had to catch up with the times in some ways. They now accept e-signatures and have had to streamline some of their processes. We’re proud of how our industry has pivoted and made positive changes to help our clients,” said Schrader.
Schrader expects refinancing and mortgage transfers to continue.
“In under 15 minutes, we can calculate the savings a customer can expect by transferring their mortgage as well as any fees to consider from breaking their term with their current lender,” said Schrader.
Both Schrader and MacDonald expressed optimism about the future.
“These have been challenging times, but we are weathering it well as a community, and we will get through it and thrive once again,” said MacDonald. “As for the housing market, low interest rates offer many opportunities.”
