The World Health Organization’s (WHO) decision to declare the novel coronavirus, also known as COVID-19, an international public health emergency could have serious economic consequences. The ripple effects of the coronavirus are being felt on Canada’s bond market, which is translating into lower mortgage rates.

Whenever there is any instability in the economy, investors tend to move their investments from higher-risk investments such as the stock market and move them towards safer investments such as Government issued bonds. Just like the laws of supply and demand, when the bond pool increases the supply increases, and therefore there is more money readily available which results in lower cost of borrowing.

We are already noticing lenders starting to reduce fixed mortgage rates and we are anticipating further rate reductions as we move forward into the spring as there is, unfortunately, no known cure for the virus at this point in time. As for how mortgage rates in Canada will be affected, in my opinion, the severity and length of the health crisis will be the determining factors.

The only recent comparable event was the SARs outbreak of 2003, during which time global economic growth slowed and mortgage rates in Canada dropped by 1%. If the coronavirus does become a long and severe pandemic, the Bank will likely cut its key overnight rate. However, Canadians who have a variable-rate mortgage would benefit in this scenario.

Consumers who are optimistic that the coronavirus will not be too severe, and that the Canadian economy will do as forecasted in 2020, should lock into a fixed-rate. If you are considering renegotiating your current mortgage for a lower rate or have high-interest debt you wish to consolidate, please do contact us and we would be happy to review your mortgage options together.