Canadian Banks Help Residents with Mortgages

April 8, 2020
Made under the Creative Commons License: https://creativecommons.org/licenses/by-sa/3.0/deed.en and uploaded by Henrickson at English Wikipedia, found at https://commons.wikimedia.org/wiki/File:RBC_Place_Ville-Marie.jpg.

This graph compares the remaining costs for residents who are both insured and uninsured. As shown in the graph, mortgages for residents who are uninsured were climbing from September 2019 to January 2020. The cost decreased for residents who were insured during this same period of time.

Can you tell me about how banks can be negatively impacted by the housing market?

Toronto house for sale, image found at realtor.ca, judithsellshomes.com, trreb.ca.

 

Bank Interest Rate Decrease

Written By: Brittney Balment

Buying a house is costly and the COVID-19 pandemic is making it harder for residents to buy or maintain their homes. Although the Conservative government recently decreased electricity costs many are still worried about other expenses including mortgage payments.  

As the economy slows down and people become somewhat unemployed because of this pandemic many banks have implemented lower interest rates. According to BNN Bloomberg RBC, TD Bank, CIBC, BMO and the Bank of Nova Scotia reduced their variable loan rates from 2.95 per cent to 2.45 per cent, this comes after cuts were made on March fifth and sixteenth. 

The Bank of Canada also lowered its interest rate to the minimum of 0.25 per cent, this dropped one percentage point compared to the rate at the beginning of the month. The distribution from this central bank to smaller banks has caused interest rates to drop all over Toronto.

Judith Fairn, picture found at realator.ca, judithsellshomes.com, trreb.ca.

The Bank of Canada has also developed two new plans to help the economy. One focuses on helping short-term funding markets and the other will seek federal government securities from at least a five billion dollar payment into the secondary market each week. 

Judith Fairn is a real estate agent for Ecko Jay Realty Limited and says that more home buyers means more money for banks because of the demand for mortgages, less-strict qualification policies and more economic growth. 

“If we’re selling a lot of houses [and] there’s a strong market then the banks are issuing more mortgages and that brings their income up.” 

Income Barriers

“The banks really rely on the real estate market”, Fairn says, but sales continue to drop during this pandemic. 

When the real estate market makes money so do the banks but as the COVID-19 pandemic continues to thrive residents are facing income barriers which causes issues not only for the customer but for the bank. Mortgage payments get decreased, pushed back or cancelled because residents aren’t able to make their payments while the bank loses money.  

“If there’s any negative impacts like when the housing market is slow the banks are issuing less mortgages and therefore their income goes down”, she says. 

A recent news release by the Canadian Banker's Association states that they are allowing mortgage deferrals and delayed mortgage payments, as of April 3 they reported close to 500,000 applications. Over ten per cent have been deferred.

There are other exceptions that Fairn notified me about including a new rule for people with contracts. Residents are allowed a two-week postponement and other residents who are trying to close an offer will be given more time as well. 

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