The Bank of Canada Announcement & What This Means for You.

General Trish Pigott 25 Jan

The Bank of Canada was expected to raise rates another .25% higher, and that is exactly what was announced this morning. The policy rate is now 4.50%, the highest rate since 2007. Which is the bank’s 8th consecutive rate hike in the past year, but the smallest one yet.

Some have predicted that for the year of 2023 the rates will continue to trend upward, but the Bank of Canada stated today that this could be the peak for this current tightening cycle as inflation is expected to “decline significantly” in the upcoming months. For Canadians, this means an extra $15.67 added to your mortgage payment for every $100,000 in mortgage. 

“We’ve raised rates rapidly, and now it’s time to pause and assess whether monetary policy is sufficiently restrictive to bring inflation back to its two per cent target,” Bank of Canada Governor Tiff Macklem told reporters after the rate announcement.

As of this January, there is an agreement between the big banks that in 2023 a recession will happen in Canada. Although economists are saying that this recession would likely be mild to moderate in comparison to previous recessions.

The banks have a real-time view of cardholder spending data and are well-positioned to report on economic trends sooner, and what we are learning is that spending is decreasing significantly due to higher costs throughout the economy and with higher interest rate expenses, we are at the point of an overall economic slowdown. But with lower spending comes a slowing economy and lower inflation, and eventually, lower mortgage interest rates.

At this time of higher rates, there is no good low rate to lock into. With this said, a calculated approach should be considered to position yourself to take advantage of lower rates once they begin to fall. Therefore a shorter term on your mortgage such as a 3 year fixed rate, could position you better to renew into a lower fixed rate in 3 years’ time. The typical 5 year term may be too long for a higher rate.

But for those with a higher tolerance to risk, a variable rate may be worth considering. Given over 40 years of rate data, as seen in a York University study on Canadian interest rates, the variable rate is likely to lead to more significant savings over years. As soon as the rate begins to fall, as predicted to in late 2023 or early 2024, the variable rate holder will benefit immediately. This ‘lower rate sooner’ potential could lead to more savings than locking in even a shorter term fixed rate. But with variable rates higher currently and another 0.25% increase announced today, it will take a strong willed person in 2023 to realize these savings over the next few years.

Have any more questions about what this means for you and your family? Don’t hesitate to reach out to us at Primex Mortgages, we would be more than happy to chat!

Trish & The Primex Team

When Higher Rates can be Better.

General Trish Pigott 18 Jan

When it comes to getting a mortgage, there is a common misperception that a low rate is the most important factor. However, while your rate does matter for your mortgage, it is not the only component to consider.

If you’re looking to get a mortgage, these are some other important factors that you should look at beyond simply the interest rate:

Term: The length of time that the options and interest rate you choose are in effect. A shorter term, which is typically 5 years, allows you to make changes to your mortgage sooner, without penalties.

Amortization: The length of time you agree to take to pay off your mortgage, usually 25 years, this determines how the interest is amortized over time.

Payment Schedule: How often you make your mortgage payments. It can be weekly, every two weeks or once a month and will affect your monthly cash flow differently depending on your choice.

Portability: An option that lets you transfer or switch your mortgage to another home with little or no penalty when you sell your existing home. Mortgage loan insurance can also be transferred to the new home.

Pre-Payment Options: The ability to make extra payments, increase your payments or pay off your mortgage early without incurring a penalty.

Penalty Calculations: Where variable rates typically charge three-months interest, a fixed rate mortgage uses an Interest Rate Differential (IRD) calculation. This can add up quite quickly! In fact, in some cases, penalties for breaking a fixed mortgage can sometimes be two or three times higher than that of a variable-rate.

Variable versus Fixed: For fixed-rate mortgages, the interest rate does not fluctuate over time. For variable-rate mortgages the interest rate fluctuates with market rates, which can be great when rates drop but not so great when rates are rising.

Open versus Closed: An open mortgage is similar to pre-payment options, allowing you to pay off your mortgage at any time with no penalties. A closed mortgage, on the other hand, offers limited to no options to pay off your interest in full despite often having lower interest rates.

When considering your mortgage the above components all have a part to play, as well as your home ownership experience.

It is easy to think that a low-interest rate is good enough, sign on the dotted line… but you may be overlooking important options such as portability, which allows you to switch your mortgage to another property should you choose to move. Or pre-payment options, which give you the choice to make additional payments to your mortgage. Without looking deeper at your mortgage, you may find yourself being forced to pay penalties in the future because you wanted to make a payment or a change to your mortgage structure. In some cases, agreeing to a higher rate to have more options and flexibility is better in the long run than the savings received from a lower rate.

Before agreeing to any mortgage it is best to talk to us, your mortgage experts, about the contract, as well as your future goals and any potential concerns you have to ensure that you get the best mortgage product for you!

Contact Primex Mortgages today to chat about all the options available for your mortgage!

Trish & The Primex team

10 Money Saving Tips.

General Trish Pigott 11 Jan

It’s the new year, and it’s time for some new goals. Whether your goals are fitness related, incorporating something new into your routine, or reminding yourself to take a few minutes to breathe, it’s never a bad time to include new financial goals. When it comes to saving money, there are a lot of little things you can do that add up to make a big difference! Here are 10 of our favourite money-saving tips:

  1. Automatic savings are one of the most effective ways to save because you can’t spend what you can’t access! Talk to your bank to transfer a certain amount from your paycheck each pay period into an RRSP or savings account (or both) or set up automatic transfers in your banking account to coincide with your payday.
  2. Consolidating debt will result in a single monthly payment and lower interest costs! Many people don’t realize just how much money they are wasting on interest each month, especially if you have multiple loans or credit cards. Consolidating debt can help you gain control and maximize spend on the principal amounts to pay off loans faster.
  3. Budget with cash if you have trouble with overspending or find it too easy to use your card (especially with Apple Pay these days). After your bills are paid, take out the remaining cash (spending money) and only use that. Once the cash is gone, you’re out of money until next payday! Having physical cash in hand can also help you think twice when making purchases.
  4. Buying in bulk is a great way to save a bit here and a bit there when doing your regular grocery shop or purchasing other items. Know you’ll need more? Stock up at once for bulk savings, which will help you in the long run!
  5. Before Buying there are two things you should always do. The first is to wait at least 24 hours and the second is to shop around! If you still want to buy something the next day, make sure you get the best price available!
  6. Plan Your Meals.Most of us don’t have time to make breakfast (let alone lunch!) before we fly out the door for work. But what if I told you that getting up an hour earlier could save you over $100 a week!? Just think about how much you spend going out for breakfast AND lunch each day? Groceries are a lot cheaper and you can even prepare a few days worth of meals on your day off while you get ready for the week. Even doubling the amount of food you prepare for dinner every night and save some for the next day can help.
  7. Think in Hours versus Dollars every time you are looking to make a purchase, especially large ones to help you understand the TIME value of money. A new $24 t-shirt = 1 hour of work. A brand-new mattress = 41.67 hours of work. Understanding the time that went into earning money for a purchase can help with reconsidering frivolous items, or encourage you to look for the best deal on necessary products.
  8. Utility Savings can help you save each month! Don’t blast your A/C with all the doors in your house open, don’t pump the heat without sealing cracks and consider things like installing water-saving toilets and running cold-water wash cycles to save energy (and money!) every day.
  9. Master DIY – While sometimes you can spend $120 to make a $20 item yourself, there are some things that do benefit from DIY, such installing dimmer switches, that can help save you money in the long run.
  10. Save Windfalls and Tax Refunds for a rainy day. A good rule of thumb is to put 50% of bonuses, tax refunds or other windfalls into your savings account and put the rest against loans owing. While you might want to go on a shopping spree or plan a vacation, paying off your debt NOW will free

The best way our clients have improved their cash flow and save money is to consolidate debts into one low payment.  Contact us today and we can help you start this process.  We are experts at this and would love to help.

Trish & The Primex team