Bank of Canada Rate Announcement Jun 9th, 2021

Marci Deane • Jun 09, 2021

Bank of Canada will hold current level of policy rate until inflation objective is sustainably achieved, continues quantitative easing

The Bank of Canada today held its target for the overnight rate at the effective lower bound of ¼ percent, with the Bank Rate at ½ percent and the deposit rate at ¼ percent. The Bank is maintaining its extraordinary forward guidance on the path for the overnight rate. This is reinforced and supplemented by the Bank’s quantitative easing (QE) program, which continues at a target pace of $3 billion per week.

With COVID-19 cases falling in many countries and vaccine coverage rising, global economic activity is picking up. Growth remains uneven across regions, however. The US is experiencing a strong consumer-driven recovery and a rebound is beginning to take shape in Europe, while a resurgence of the virus is hampering the recovery in some emerging market economies. Financial conditions remain highly accommodative, reflected in broadly higher asset prices. Commodity prices have risen further, notably oil, and the Canadian dollar has seen a further appreciation.

In Canada, economic developments have been broadly in line with the outlook in the April Monetary Policy Report (MPR). Despite the second wave of the virus, first quarter GDP growth came in at a robust 5.6 per cent. While this was lower than the Bank had projected, the underlying details indicate rising confidence and resilient demand. Household spending was stronger than expected, while businesses drew down inventories and increased imports more than anticipated. Renewed lockdowns associated with the third wave are dampening economic activity in the second quarter, largely as anticipated. Recent jobs data show that workers in contact-sensitive sectors have once again been most affected. The employment rate remains well below its pre-pandemic level, with low wage workers, youth and women continuing to bear the brunt of job losses.

With vaccinations proceeding at a faster pace, and provincial containment restrictions on an easing path over the summer, the Canadian economy is expected to rebound strongly, led by consumer spending. Housing market activity is expected to moderate but remain elevated. Strong growth in foreign demand and higher commodity prices should also lead to a solid recovery in exports and business investment. Despite progress on vaccinations, there continues to be uncertainty about the evolution of new COVID-19 variants. More broadly, the risks to the inflation outlook identified in the April MPR remain relevant.

As expected, CPI inflation has risen to around the top of the 1-3 percent inflation-control range, due largely to base-year effects and much stronger gasoline prices. Core measures of inflation have also risen, due primarily to temporary factors and base year effects, but by much less than CPI inflation. While CPI inflation will likely remain near 3 percent through the summer, it is expected to ease later in the year, as base-year effects diminish and excess capacity continues to exert downward pressure.

The Governing Council judges that there remains considerable excess capacity in the Canadian economy, and that the recovery continues to require extraordinary monetary policy support. We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In the Bank’s April projection, this happens sometime in the second half of 2022. The Bank is continuing its QE program to reinforce this commitment and keep interest rates low across the yield curve. Decisions regarding adjustments to the pace of net bond purchases will be guided by Governing Council’s ongoing assessment of the strength and durability of the recovery. We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective.

Information note

The next scheduled date for announcing the overnight rate target is July 14, 2021. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR at the same time.

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4 Ways to Access Your Home Equity

By Marci Deane • 08 May, 2024

If you've been a homeowner for many years, it is likely your property value has increased significantly. One advantage of homeownership is the opportunity to build equity. Home equity growth, partnered with the security of living in your own home, is why most Canadians believe homeownership is the best choice for them! While home equity is one of your greatest assets, accessing home equity is often overlooked when putting together a comprehensive financial plan. So if you’re looking for a way to access some of your home equity, you’ve come to the right place! Simply put, home equity is the actual market value of your property minus what you owe. For instance, if your home has a market value of $650k and you owe $150k, you have $500k in home equity. If you want to stay in your home but also access the equity you have built up over the years, there are four options to consider. Conventional Mortgage Refinance Assuming you qualify for the mortgage, most lenders will allow you to borrow up to 80% of your property’s value through a conventional refinance. Let’s say your property is worth $500k and you owe $300k on your existing mortgage. If you were to refinance up to 80%, you would qualify to borrow $400k. After paying out your first mortgage of $300k, you’d end up with $100k (minus any fees to break your mortgage) to spend however you like. Even if you paid off your mortgage years ago and own your property with a clear title (no mortgage), you can secure a new mortgage on your property. Reverse Mortgage A reverse mortgage allows Canadian homeowners 55 or older to turn the equity in their home into tax-free cash. There is no income or credit verification; you maintain ownership of your home, and you aren't required to make any mortgage payments. The full amount of the mortgage will become due when you decide to move or sell. Unlike a conventional mortgage refinance, reverse mortgages won’t allow you to borrow up to 80% of your home equity. Rather, you can access a lesser amount of equity depending on your age. The interest rates on a reverse mortgage can be slightly higher than the best rates currently being offered through standard mortgage financing. However, the difference is not outrageous, and this is an option worth considering as the benefits of freeing up cash without mortgage payments provides you with increased flexibility. Home Equity Line of Credit (HELOC) A Home Equity Line of Credit allows you to set up access to the equity you have in your home but only pay interest if you use it. Qualifying for a HELOC may be challenging as lender criteria can be pretty strict. Unlike a conventional mortgage, a HELOC doesn't usually have an amortization, so you're only required to make the interest payments on the amount you've borrowed. Second Position Mortgage If the cost to break your mortgage is really high, but you need access to cash before your existing mortgage renews, consider a second mortgage. A second mortgage typically has a set amount of time in which you have to repay the loan (term) as well as a fixed interest rate. This rate is usually higher than conventional financing. After you have received the loan proceeds, you can spend the money any way you like, but you will need to make regular payments on the second mortgage until it's paid off. If you’re looking for a way to access the equity in your home to free up some cash, please get in touch. You’ve got options, and we can work together to find the best option for you!

Interest Rate Cut Speculation Heats Up!

By Ask Marci • 06 May, 2024

Rate cut speculation is heating up! We wanted to touch on a few things in regard to the big “interest rate conversation”. Yes, the Bank of Canada will very likely start cutting the Bank of Canada rate this summer (perhaps as soon as next month). This will immediately impact Variable Rate mortgage holders. Currently, the prime lending rate is 7.20% meaning a 0.25% rate cut by the BOC should mean that banks will follow suit and cut prime to 6.95%. The US jobs numbers on Friday have improved the odds of a predicted BOC bank cut. This week rate watchers will be focused on the Canadian numbers (due out on Friday May 10th). Economists that we follow speculate that the current fixed rates are already pricing in the BOC’s first two cuts. This means that a cut in June or July may not impact fixed rates at all. The cut will narrow the spread between fixed and variable. If history is a predictor, this chart we created illustrates this where the green line will simply drop, narrowing the gap between prime, fixed and variable.

How to Save Money for a Downpayment

By Marci Deane • 01 May, 2024

Whether you want to set aside money to buy a car or take a vacation, save up for a down payment on a property, or plan for your retirement, the principles are the same. However, as you’re reading this article on a website dedicated to helping you secure mortgage financing, we’ll assume you want tips on how to save for a down payment! The key to saving money is getting clarity - clarity around your income and your expenses, developing and following a clear plan, and seeking help from professionals who can help you see the big picture as well as the details. Although this might seem fundamental, sometimes going back to basics is the best place to start. Assess your income. If your goal is to save money, you’ll need to identify just how much money you’ve got to work with! The best way to do this is to write everything down. This could be with paper and a pen or on a spreadsheet; whichever way works best for you is fine. The goal is to have all your income in front of you! If you’re on a fixed income or receive a salary for work, your calculations might be pretty simple. Use the income you actually take home, not your gross income. Include an average of your variable income sources like tips, overtime, bonuses, or shift differentials. You should also include other income sources like an annual tax return, and child tax or other government benefits. Spend time to make an exhaustive list of all your income sources. Track your expenses. Once you’ve identified what you have to work with on the income side, the next step is to figure out just how much you actually spend to maintain your current lifestyle. Start by identifying regular bills, then look at your discretionary spending. If you have a budget already in place, you should be able to identify these numbers easily. If not, you can expect that getting clarity around your expenses will be very enlightening. It will be helpful to look through a few months’ worth of bank statements to see just how much money you actually spend. Information is the key to finding clarity. The more information you have, the more equipped you will be to save money. Just like your income, write down all your expenses. This will allow you to assess and reprioritize where you spend your money. Develop and follow a plan. Once you have a clear picture of your income and expenses, you need to figure out how to make more money than you spend. Although that sounds so simple, it really isn’t. The majority of Canadians incur debt because they spend more money than they make. This is why saving money can be so hard. But if we’re going back to basics, remember this: if you’re spending more money than you're making, you need to either increase your income or decrease your expenses to start saving money. There are countless money-saving strategies on the internet; consider following a few financial bloggers, and have fun learning about what works best for you! Seek help from professionals. You’re probably here to learn about how to save money for a down payment because you want to buy a home soon. If that's the case, be assured you're in the right place. Putting together a plan to secure mortgage financing is one plan you don't have to make on your own. As independent mortgage professionals, it’s our job to help you navigate all aspects of mortgage financing. Just like saving for a down payment is about managing income and expenses, so is getting a mortgage. Income and expenses, along with credit and property, are what a lender looks at when assessing your suitability for a mortgage. So while you might assume that putting together a plan to save for a down payment is where you should start, it might not actually be the best place to start. Saving money takes time, and while you're doing that, there are many other things you could be doing at the same time, like building credit to increase your chances of qualifying for a mortgage sooner. When you’re ready to assess your financial situation and put together a plan to save for a down payment and get into a mortgage sooner, please get in touch. It would be a pleasure to work with you.