COVID-19: Bank of Canada and Mortgage Updates

Posted on 27 March, 2020

Bank of Canada Update

For the third time since March 4, 2020, the Bank of Canada has decreased their overnight lending rate. The benchmark rate, now sitting at 0.25 percent, is at the lowest it has been since the global financial crisis of 2009. According to the bank, this largely unprecedented move is “intended to provide support to the Canadian financial system and the economy during the COVID-19 pandemic.”

While a decrease in interest rates will directly stimulate the economy, the Bank of Canada also announced the launch of two new programs today that will have an indirect impact toward the same goal:

1. The Commercial Paper Purchase Program (CPPP)

Through this program, the bank will take on debt from companies known as “commercial paper.” This helps them to meet their short-term financing needs and preserves “a key source of funding for businesses.”

2. The Acquisition of Government of Canada Securities in the Secondary Market

According to the central bank, they will begin acquiring a minimum of “$5 billion per week, across the yield curve.” Acquisitions will be continuously monitored and adjusted as necessary. This program, known as “quantitative easing,” is aimed at ensuring there is enough money flowing through the system so that eligible borrowers can continue to access funds as necessary.

What does this mean for me?
In terms of the rate drop, variable-rate mortgage holders will generally see a corresponding decrease in their mortgage payments. The Bank of Canada’s overnight lending rate is the rate at which they lend money to banks and other financial institutions. When this rate drops, these institutions will generally drop their own rates in response - passing along this savings to consumers.

With the new program changes, banks should have enough liquidity (access to funds) to be able to provide loans for qualifying consumers or businesses that need them.

The next scheduled rate announcement will take place on April 15, 2020.

Mortgage Process Changes

In addition to the changes made through the Bank of Canada, consumers can also expect to see changes in the way the mortgage process will work in response to COVID-19.

Income Disruption
For applications currently in progress where the applicant is now experiencing a temporary income disruption due to COVID-19, mortgage borrowers will not be required to submit a new application if the following conditions are met:

  • The mortgage is insured through a default insurance provider (CMHC, Genworth or Canada Guaranty). This situation applies to mortgages with a down payment of less than twenty percent.
  • The application was approved as of March 25, 2020
  • The borrower has entered into a legal binding purchase and sale agreement and waived financing conditions as of March 25, 2020
    The closing date is on or before September 30, 2020

Lenders will, however, continue to complete the income and employment confirmation based on the information provided in the original mortgage application as they would prior to the income disruption. This means that documentation requirements will remain the same for these mortgage borrowers.

If your application does not meet the above criteria, your mortgage lender will consider your current income situation and a new application may need to be submitted. If you wish to have an exception made, these requests will be considered on a case-by-case basis.

In response to COVID-19, appraisers across Canada have developed a new process to provide full appraisal valuations to lenders. This new process has been approved by all appraisal associations, and is called “Modified Full Appraisals.” It will be implemented effective immediately, and will include the following:

  • If the customer consents and the conditions permit a physical inspection, the appraiser may complete an onsite inspection.
  • In situations where a physical inspection is not possible, virtual methods of inspection can be completed through third-party services such as WhatsApp, Skype or FaceTime. The customer will be able to provide a virtual tour, screenshots or photos to the appraiser which will be used in the final appraisal report.
  • The appraisal report will include the name of the customer that provided the virtual inspection, as well as the date and time that the inspection was completed. It will also include “appropriate extraordinary assumptions and limiting conditions” with respect to the appraisal method used.
  • Third-party information may also be used to help supplement the lack of physical inspection, and the sources used will be provided in the report.
  • With this process, there will no longer be a value range provided on any reports; rather, the valuation of your home will be a single point (for example, $325,000 rather than $315,000-$330,000).

Final Documentation Signing
In special cases where borrowers are unable to sign documentation in person with a lawyer, notary, or closing agent, some lenders will authorize electronic signing methods (in compliance with legal requirements). Additional lenders may follow suit depending on how the COVID-19 situation evolves, and your broker should be able to help facilitate this process if necessary.

If you have recently applied for a mortgage and are unsure whether you will need to submit a new application, our office is here to help. Please give us a call at 780-416-1085 or submit a contact request through our website.

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