Now might be an ideal time to refinance your home or apply for a mortgage because, for the first time ever, a mortgage lender has lowered its five-year fixed mortgage rate below 2% in Canada.
According to mortgage comparison Rate Spy, HSBC has lowered its five-year fixed mortgage rate to 1.99%, becoming the first bank to “crack” the 2% barrier.
However, this is for default-insured mortgages only, which Rate Spy defines as a form of protection for lenders (and that lender’s investors) in the event that a borrower defaults on his or her payments. For homebuyers with a down payment of less than 20%, insurance is generally required by law.
Currently, the uninsured five-year fixed rate is roughly 2.29%.
“HSBC’s move not only reflects historically low funding costs but its continued drive to brand itself as Canada’s most competitive lender,” said Rate Spy.
The mortgage comparison site noted other major banks such as RBC, TD, Scotiabank, BMO and CIBC could easily undercut this rate if they wanted to, but are unlikely to near-term.
The Canadian Mortgage Housing Corporation (CMHC), the country’s national housing agency, says that in the first quarter of 2020, an overwhelming 96.6% of default-insured borrowers chose a fixed rate. This comes as the CMHC announced it’s changing its underwriting policies for insured mortgages beginning on July 1, after foreseeing a 9% to 18% decrease in house prices over the next 12 months.
Effective July 1, the following changes will apply for new applications for homeowner transactional and portfolio mortgage insurance:
- Limiting the Gross/Total Debt Servicing (GDS/TDS) ratios to our standard requirements of 35/42;
- Establish a minimum credit score of 680 for at least one borrower; and
- Non-traditional sources of down payment that increase indebtedness will no longer be treated as equity for insurance purposes.