Everyone is looking to save as much money as they can with their mortgage, and locking in at the lowest mortgage rate on the market is top priority. There is so much talk about the Bank of Canada dropping their rate that many are waiting for the next announcement before they make the decision to begin the mortgage approval process.

But there are two reasons why this is not necessary:

1. The Bank of Canada announcements apply to variable rate mortgages only.
2. Beginning the approval process doesn’t mean you’re committed.

 

The Bank of Canada Announcements Apply to Variable Rate Mortgages Only

When the BoC adjusts their rate by, for example, 0.25%, mortgage lenders typically adjust their prime rate by the same 0.25%. This adjustment can happen quickly, sometimes as soon as the same day. However, some mortgage lenders may choose to implement the new prime rate starting at the beginning of the following month, regardless of whether the rate is increasing or decreasing.

One of the largest contributing factors to fixed mortgage rate pricing is Government of Canada bond yields. As they rise, upward pressure is placed on fixed mortgage rates. When they drop, the opposite happens.

The bond market is already anticipating a cut to the prime rate, which means that bond yields may not drop even if the Bank of Canada announces a rate cut. With improving inflation, the chances of a cut on June 5th have increased. However, despite this positive outlook, bond yields have been rising over the past two weeks, putting fixed rates in danger of increasing. If the yields continue their upward climb, increases to fixed mortgage rates will be imminent. Even if they remain at their current level, fixed rates are in what I call the danger zone, meaning that we could see an increase at any time, regardless of the Bank of Canada’s decision next Wednesday.

If you’re waiting for the June 5th announcement to lock in a rate, you might end up securing a higher rate than what is available today.

 

What Happens if Rates Drop After You’re Approved?

The only way to lock in a rate is to start the approval process. This protects you against potentially rising rates but doesn’t commit you to the locked rate. If rates drop, then we will get your rate lowered for you. We are constantly watching the rate market for our clients and can often get the rate dropped right up until a few business days before your closing date. We do this for our clients whenever the opportunity presents itself. It does not matter if you have already signed the documents or not. The lender will still lower the rate for you.

But there is one exception…

Note that there are some mortgage products that are for ‘new business only’. This means that the lender will not float down (drop) your rate. However, we have excellent relationships with our lenders and can often get an exception made for you. Should your mortgage have this clause, we’ll advise you accordingly when we quote you the rate.

 

What if Another Lender Has a Lower Rate?

This can happen, and if it does, we’ll advise you accordingly. Another lender may come out with a lower rate, but then your current lender could match it a few days later, or possibly even beat it. Mortgage lenders can sometimes leapfrog each other with lower rates as they don’t always change their rates at the same time. We’re always monitoring the market for you and will let you know if it makes sense for you to jump ship and move your mortgage to another lender. This can generally be done up until a few weeks before closing.

Our goal is not only to save you as much money as we can, but also save you time as well. We’ll do the shopping for you, so you don’t have to. But if you still choose to shop on your own, then all we ask is to let us know if you happen to see a lower rate. Often, it’s already on our radar. We will then advise you of the best course of action.

One thing to keep in mind is that the lowest rate is not always the one that will save you the most money. Rate is important, but the real cost of a mortgage can be found in the terms and conditions… and they are not always easy to understand. I would recommend reading my blog on The Best Mortgage Rate Vs. The Best Mortgage. But if you really want to take your mortgage knowledge to the next level, then you’ll want to pick up a copy of my Amazon #1 best selling book ‘Beat the Bank – How to Win the Mortgage Game in Canada’.

 

Conclusion

There is a good chance that the Bank of Canada will drop their rate by 0.25% with their next scheduled announcement on June 5th. This doesn’t mean it WILL drop as many are thinking. Economists are still split on what we can expect next week.

But even if they drop, this doesn’t mean that upward pressure on fixed mortgage rates will be relieved. It’s still possible that we could see fixed mortgage rates increase, despite a rate cut from the BoC. This is exactly why it can be dangerous waiting for the BoC’s decision next week before locking in a rate. By then, it could be too late. There is nothing to lose by locking in a rate in advance of the decision… however, waiting could result in paying a higher rate unnecessarily.

As for what happens on June 5th? We’ll find out soon enough.