Breaking Down the Latest Bank of Canada Interest Rate Hike

Marci Deane • Jan 26, 2023

Here we go again….The Bank of Canada has once again increased the Bank of Canada rate. This time the increase is 0.25%. This increase will impact the prime lending rate which is now expected to be increased at most banks to 6.70%. A small bit of good news is that the Bank Governor has hinted this may be the last increase for some time and many economists are predicting this new prime will hold for several months. More good news, inflation is cooling with the rate of inflation dropping to 6.3% this month which is the lowest number since February 2022. There is still a lot of uncertainty in the Canadian and Global economies in general and we continue to hear predictions of a recession looming.

All of this comes today, January 25th which is “Bell Let’s Talk Day”! The irony is not lost on me that that today is a day for open conversations to acknowledge that we need to talk about stress, anxiety and mental health. The past eleven months and all these repeated rate hikes coupled with the pressure of historically high inflation, declining investment returns and rising costs on all fronts has most certainly negatively impacted mental health for many Canadians.

For most people, likely the best financial decision today is to hold tight in their Variable Rate mortgage and ride this out. History has proven that the old saying “what goes up must come down” does apply to the prime lending rate but the timing of the next downward trend is unknown. This uncertain timing and the lack of a crystal ball to predict the future, means that for some borrowers the time may have come to lock in and/or to convert to a fixed rate. In many cases this decision is more of a positive mental health decision versus a financial decision. This may mean early renewing and refinancing, switching lenders or locking in with a current lender.

More good news…..in the last three weeks, we have seen the fixed mortgage rates coming back down for some terms with some lenders! We are now seeing rates between 4.70% and 5% and especially for the three year and five year fixed options, there are some attractive offers. These lower rates have afforded an opportunity for borrowers to consider converting to a fixed, stable rate and payment, to “set it and forget it” and ride out this economic storm.

All of this is very personal and each scenario should be reviewed individually to discuss the pros and cons before any changes are made. I invite you to book a conversation with me so that we can discuss your specific goals and needs.

For those of you who are craving more information from economic experts, I have put together a brief list of additional reading and resources…..Note: I did NOT say required reading….I recognize this stuff is not for everyone!!!

From CIBC economist Benjamin Tal - Another rate hike, house price declines and a stock market gaining traction in the second half: What CIBC’s Benjamin Tal expects for 2023: Click Here

Upcoming Events:

MASTER YOUR MORTGAGE WITH THE SMITH MANOEUVRE with Robinson Smith

January 30, 2023 @ 7:00 pm

With these high interest rates and high inflation, it is now even more important, and effective, to deduct your mortgage interest but this is not so easy in Canada. As a rule, mortgage interest is not an acceptable tax deduction in most instances.

There are ways to do this legally but it takes planning and management by the homeowners / mortgage holders. The strategy is known as The Smith Manoeuvre and it can work well for some people. Once implemented and with ongoing management and due diligence, the Smith Manoeuvre can save homeowners money over time.

Want to learn more? Join us for this live Webinar co-hosted and presented by Robinson Smith (he quite literally wrote the book on the Smith Manoeuvre). Sign up below and even if you cannot attend live, we will send you the replay.

TOP TEN THINGS TO CONSIDER WHEN RENEWING YOUR MORTGAGE Hosted by Marci Deane

February 7, 2023 @ 7:00 pm

I am going to discuss all things related to Mortgage Renewals and help borrowers prepare for renewing in 2023! For most borrowers this means renewing at rates that will be 2% ++ above where they started out. It is more important than ever to understand all your mortgage options at renewal.

Even if you cannot attend and if these topics interest you, register and you will receive the replay!

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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.