March 4, 2020

Mortgage Outlook: Bank of Canada Releases Emergency Rate Cut Amidst COVID-19 Fears

Mortgage Outlook: Bank of Canada Releases Emergency Rate Cut Amidst COVID-19 Fears

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Key Highlights:

  1. The Bank of Canada implemented a cautionary measure to protect the Canadian economy against the impact of the COVID-19 virus. Fears around the virus have led to stock market selloffs and a drop in fixed mortgage rates.
  2. Before March 4th, 2020 the Bank of Canada did not change the rates since October 2018. The Bank of Canada now coincides with the Emergency Rate Drop implemented on March 3rd, 2020 by the U.S. Federal Reserve.
  3. Prime Rate and Variable Rate Mortgages are expected to drop, with fixed rates expected to be higher in 2021.
  4. Lower mortgage rates will boost house prices and buyer power in the short run, but the chances of a recession have increased possibly hurting the housing market in the future.
  5. Now is the time to either lock in a new variable rate mortgage or refinance your existing one to secure a lower rate for the future.

It’s becoming clear that the economic impact caused by COVID-19 is not a glitch. With new cases reported in Italy, South Korea, Iran and USA, The Bank of Canada took an extraordinary measure to protect the Canadian economy amidst growing fears.  

Just today, the Bank of Canada reported an overnight rate drop of 50 basis points announcing the target rate drop as 1.25%. Pushing down the current rate from 1.75% to 1.25%. Expert analysts anticipated a rate drop of 25 basis points, so this was a surprise to many.

A statement released on Wednesday states,

“COVID-19 represents a significant health threat to people in a growing number of countries. In consequence, business activity in some regions has fallen sharply and supply chains have been disrupted. This has pulled down commodity prices and the Canadian dollar has depreciated. Global markets are reacting to the spread of the virus by repricing risk across a broad set of assets, making financial conditions less accommodative. It is likely that as the virus spreads, business and consumer confidence will deteriorate, further depressing activity.”

Bank of Canada

The dramatic rate drop was in response to a commitment by G7 finance ministers to take a coordinated approach to combat economic impacts of COVID-19.

The Bank of Canada states that before the outbreak, the global economy was showing signs of stabilizing. However, recent economic uncertainty has led to declining consumer and business confidence. Thus, lowering commodity prices and decreasing the value of the Canadian dollar. Following this announcement, economists are already anticipating another cut of 25 basis points in April. But, for now, no one can be sure. 

Concern over COVID-19 Pulls Down Fixed Mortgage Rates

A lower borrowing rate for fixed and variable mortgage rates puts home buyers at an advantage.

The Toronto Real Estate Board reported that home sales in February 2020 were up by 45.6% compared to February 2019, when they were at an all-time decade low. Some economists believe that the Bank of Canada will have to lower rates even further to respond to increased global economic pressures.

The board also reported that the average home price in Toronto was up to $910,290 in February 2020 compared just $779,791 exactly a year prior. It’s clear that the Bank of Canada is weighing a virus-driven slowdown much higher than the cost of a raging housing market.

What’s Next for Home Buyers?

Experts are forecasting rates to drop again in April, which will put even more pressure on an already very hot real estate market.

There’s no doubt that lower interest rates will be a huge gain for buyers. Falling interest rates will increase the amount the bank can offer. Thus, giving you, the home buyer, a larger home buying budget to work with.

If you are planning on purchasing a property, and concerned about a fluctuating market, don’t fret.  Our suggestion is to close with a variable rate mortgage over a fixed rate mortgage.


In a fixed rate mortgage, the interest rate and mortgage payments are fixed for the duration of your term. The rate will stay the same regardless of rate fluctuations which could be beneficial for overall stability and budgeting but not when you’re faced with a fear of missing out.

If you don’t want to miss out on a potential opportunity, then a variable rate mortgage gives you the flexibility to move with the market. Currently, the rate is slightly higher but know that it’s temporary. There are no additional costs if you take a minimum 3-year fixed term mortgage. This option allows you to convert your variable rate mortgage to a fixed rate mortgage if there is a rate drop, you’d like to take advantage of.

To get access to experts who know what every lender is doing, consult a mortgage broker. They have the knowledge and the access to the broadest number of options to find you the most suitable financing.