By Alisa Aragon
2020 has been an unprecedented year, with so many changes and unknowns. COVID-19 has had a huge impact on our national economy, with the government having to step in, unemployment at a record high, lenders’ helping with mortgage payment deferrals and historically low interest rates. The continuous growth of the housing market is what is helping our economy recover.
The economic recovery will depend on the development of the pandemic and the vaccine. Economists are stating that extensive lockdown measures that we experienced early in the pandemic will not happen again, yet containment measures will be more localized and determined by the provincial governments. The Bank of Canada suggests that vaccines and effective treatment will be widely available by mid 2021. At that time, the direct effects of the pandemic on the economic activity will have ended, yet people will still be cautious and uncertain about COVID-19.
In addition, the Bank of Canada has committed to keeping the overnight rate at 0.25 per cent until the economic conditions be consistent with a “sustained” two per cent inflation rate. With the second wave of COVID cases and rolling shutdowns underway, this means a slow rebound of the economy in the coming quarters. It is very unlikely we will see inflation averaging above 2% or higher though 2022. The forecast for overnight rate by the Bank of Canada will remain at 0.25 per cent until 2023.
The announcement of Pfizer that they have a highly effective vaccine, and Moderna Inc stating that the COVID-19 vaccine as 94.5% effective in their preliminary analysis, has pushed up the US and Canadian bond yield, leading many to suggest a slight increase in fixed mortgage rates and discounts on variable rates may be reduced in the near future. This means that mortgage interest rates will still be at record lows, which will be a good time for buyers to get into the market and homeowners to refinance their mortgages at a lower interest rate.
On the other side, lenders are being more cautious about to whom they are approving mortgages. Lenders are looking at all mortgage applications and documentation a lot more closely. Additionally, more documentation is being requested by lenders to support the mortgage application. For borrowers whose income was affected in 2020 due to the pandemic, and usually get overtime, bonuses, or are self employed, their borrowing power will be less and this will affect how much they qualify for in 2021, as lenders use the two year average. If your income is not guaranteed the lender will ask more questions as well. Additionally, if the borrower has deferred payments whether they were mortgages, credit cards, loans, etc. The lender would want to make sure that you are making those payments again and explain the reason for the deferred payments. They want to make sure you are in a better financial position and will be able to make the payments in the future.
Typically, when applying for a mortgage there are quite a few documents that the lender requires, and do not be surprised if they ask for even more documents in the coming year.
Despite the fact that we are on the way to a slow recovery, the housing market continues to grow and interest rates continue to be at historic lows, it is best to have a strategy in place with the help of a Mortgage Expert that can advise you and assist you throughout the process based on your individual needs.