Rising Interest Rates? Do Not Panic!

Mortgage Tips Trish Pigott 27 Jun

With the recent changes in interest rates by the Bank of Canada, variable-rate mortgage holders have started to panic. We wanted to address these concerns, to assure you that the sky is not falling. Despite what you see in the news, you do not need to panic! There is still lots of opportunity in this market.

Inflation across North America is affecting everyone.  On June 15th, the U.S. Federal took an aggressive step of boosting its interest rate by 0.75%.  Federal Reserve Chair, Jerome Powell, also indicated there could be more, bigger-than-normal, increases in the future.

The U.S. increase follows a 0.5% rate increase by the Bank of Canada at the beginning of June.  Both central banks are engaged in a serious fight to bring inflation back to a 2% target.  Right now, inflation is nearly 7% in Canada and almost 9% in the U.S.  This month’s hike by the U.S. Fed is leading many to believe that Canadians may see another 0.75% increase sometime this year.

This information does not help relieve anxiety from homeowners here in Canada, as a recent survey from Manulife suggests more than 20% of Canadians expect rising rates to have a negative effect on their mortgage, debt, and financial situation. Few Canadians “feel prepared for rising rates.”

However, these fears may be the result of a lack of knowledge rather than any real risk.  This survey conducted by Manulife also reveals that nearly a third of respondents admit that they do not understand how inflation or interest rates work.  Many do not have a household budget or a written financial plan.  This is critical in planning for the future of rising rates in your household.

Want to understand more about our economy and inflation?  CLICK HERE to check out this report from Dr. Sherry Cooper, our Chief Economist.

Here are 5 tips to help plan for the future:

1. First, contact us if you would like your mortgage reviewed.  We can quickly spot different ways to help improve your monthly cash flow including changing your payment frequency or extending your amortization.

2. Consider a debt consolidation – this can save you thousands  in unsecured debts with high-interest by rolling them all into one monthly payment.

3. Prepare a monthly household budget – This is lacking in the majority of Canadian households!  CLICK HERE to get started on tracking your expenses and ensuring your hard-earned income is going to the right places.

4. Hold off on unnecessary purchases for now.  No matter how big or small, now is the time to reign it in.

5. Increase your payments to absorb rising rates if you are in a variable rate mortgage and worried about future payment increases.

Please share this with your friends, family or coworkers who are feeling worried about the rate changes and their current financial situation. We can help put them at ease! And don’t hesitate to contact us with any questions.  When in doubt, call us at 604-552-6190 and we will help ease your stress!

June 1st Interest Rate Update

Latest News Trish Pigott 3 Jun

Bank of Canada Announcement

On Wednesday, the Bank of Canada (BoC) increased it’s prime interest rate by 0.50%.  As mentioned in our previous blog post, this has been widely expected since April.  This change affects variable rate mortgage holders, home equity lines of credit and any loans that are attached to the bank’s prime lending rate.  If you have a fixed rate mortgage, this will not impact your current rate or mortgage payment.

As our economy recovers from the pandemic and inflation across the country becomes higher than expected, the BoC’s rates will continue to increase until inflation falls back to a reasonable level.  There is speculation that we will see further rate hikes throughout the rest of the year until consumer spending is under control.

Here is an example of how the new prime rate of 3.70% affects mortgage payments:

Current Prime Rate at 3.20%
$100,000 Mortgage amount
3.20% Prime rate
25 year Amortization
$483.57 per month

New Prime Rate at 3.70%
$100,000 Mortgage amount
3.70% Prime rate (increased by .50%)
25 year Amortization
$509.88 per month

Payment will rise by $26.31 per month for every $100,000 in mortgage.

If you have a discount off of the prime rate for your mortgage, you will still get that discount off of the new rate.  For example, if your mortgage rate is currently prime minus 0.50%, your new rate would be 3.20% (prime of 3.70% – 0.50% = 3.20%).

It’s easy to panic when you hear this all over the news and social media, but rest assured, you are still in a great position with a variable rate mortgage. If you do feel like you want to look at locking in a fixed rate mortgage, please reach out to us.  Right now, lock in rates for a five year term are around the mid 4% range; This depends on your down payment and equity.

Another option is to set your payment as if you are in a fixed rate. This allows you to not be as heavily impacted by future rate increases, while paying down your mortgage quicker and saving on interest.

It’s important to note that 73% of Canadians break their mortgage term at the three year mark, triggering a penalty that can be very large.  By remaining in a variable rate, you would only be subjected to a 3-month interest penalty which is about a quarter of the penalty when in a fixed rate.

Unfortunately, no one has a crystal ball to predict what will happen in the next 12 – 24 months, but we do know that the government will make every attempt possible to curb spending and bring our inflation back to a more reasonable effort.

While we are in a transition state, here are a couple of tips to follow:

  • Round your payment to the nearest $100 if possible
  • If you want to be more aggressive, set your payment like you have a fixed rate
  • Think twice before making large purchases
  • Budget ahead of time rather than make spontaneous spending decisions
  • Reduce debt in as many cases as you can
  • If you have to make a large purchase (such as real estate), be sure to run all scenarios to ensure affordability and qualification, and make sure you have a professional representing you

If you want to read the full report from our very own economist Dr. Sherry Cooper, please CLICK HERE.

The next interest rate announcement from the Bank of Canada is July 13, 2022.  Feel free to share this information with your friends, family or coworkers, and don’t hesitate to contact us with any questions at all!

May 2022 Market Update

Latest News Trish Pigott 25 May

Looking for a market update?  You’re not the only one! The real estate market is a bit more relaxed than it has been in recent months, allowing people to make decisions on buying and selling under less pressure.

You are probably hearing about drastic price drops in the media, which instills fear in many homeowners and buyers.  Do not get caught up in the media! The best thing to do is to contact us directly.

We have another rate announcement coming from the Bank of Canada on June 1st. It’s expected that we will see a 0.50% increase to the overnight target rate.  This means the current prime rate will be 3.70%.  With this, many people are in fear of what to do with their current variable rate mortgage.  Our advice…ride the wave! Today, variable rates are still far less than fixed rates.

Other variable rate mortgage benefits include:

  • Variable rates are currently 1.5-2.0% lower than fixed rates right now
  • If the prime rate changes, it will go up at a slower pace than  jumping to a fixed rate
  • Lower rates allow you to pay thousands less in interest
  • Variable rates have the lowest penalty calculation if you need to make changes during your term

In conclusion of this market update, fixed interest rates are currently in the mid to high 4.0%, with variable rates in the range of 2.70%.  The anticipated increase on June 1st brings the potential of the variable rate increasing to the low 3% range. Remember, this is still much lower than today’s five-year fixed rates.

If you are considering purchasing a property or want to refinance to take advantage of equity, contact us right away. We will get the process started so you will not be impacted by further increasing rates. And as always, we’re here if you have any questions!

Interest Rates Will Begin to Rise

Latest News Trish Pigott 4 Feb

Last week the Bank of Canada announced that they would leave the overnight target rate unchanged but has given indications that they will begin raising rates back to a normal pre-pandemic level going forward.  This is good news for Variable Rate Mortgage holders, those with lines of credits or loans tied to your banks prime rate.  Your interest rate and your payment will not change.

The Bank of Canada announces interest rates 8 times per year and this is the first of 2022 when more than 70% of analysts predicted they would raise rates today.  Below is the Bottom Line from Dr. Sherry Cooper, Chief Economist for Dominion Lending Centres. Her prediction is that we will see rates back to normal levels by the end of 2022 to where they were in early 2020.  If that is the plan, that would change our Prime rate today from 2.45 to 3.70%.  Those with a variable rate mortgage at Prime -1.00% would give you an interest rate of 2.70% and that would mean a payment increase of roughly $60 for every $100,000 in mortgage.

Bottom Line from Dr. Sherry Cooper

It surprises me that economists in Canada would expect the Bank to hike interest rates during a Covid lockdown without properly measured signaling beforehand. Bay St’s hysteria about inflation seems to have muddied thinking. The Bank will be taking out the big guns to get inflation under control. Overnight rate hikes begin at the next policy meeting on March 2 and then Quantitative Tightening shortly after that. The downsizing of the Bank’s balance could have even more dramatic effects on the shape of the yield curve, hiking longer-term interest rates.

In today’s policy statement and Monetary Policy Report, the Bank emphasized the strength of the housing market and the impact on inflation of the more than 20% rise in Canadian house prices last year. The MPR suggests that housing market activity strengthened again in recent months, led by a rebound in existing home sales. Low borrowing rates and high disposable incomes continue to contribute to elevated levels of housing activity in the first quarter. At the same time, other factors that support demand, such as population growth, are also now picking up.”

Traders continue to bet that the Bank of Canada will hike interest rates by 25 basis points five or six times this year. This would take the overnight rate from 0.25% to 1.5% to 1.75%. It was 1.75% in February of 2020 before the pandemic easing began. Markets also expect two more rate hikes in 2023, taking the overnight rate to 2.25%.

You can read the full article here.

The next rate announcement is March 2, 2022.  If you want to discuss how future rate announcements could affect you, please call us at 604-552-6190.

Rate Update September 2021 – Large Banks Lowering Rates

Latest News Trish Pigott 23 Sep

There have been some exciting moves in the mortgage rate news since the BoC announcement earlier this month. Below is an excerpt from Canadian Mortgage News about the recent changes.

Six Big banks have lowered their 5-year fixed mortgage rate over the last couple weeks.

The banks dropped their uninsured 5-year fixed rate by 25 basis points to 2.19%, according to data from RateSpy.com.

Some bankss moves were more significant. That brings its insured (high ratio) 5-year fixed to 1.89% (from 2.34%) and its uninsured 5-year fixed to 1.99% (from 2.44%).

The moves follow a downtrend in bond yields in recent months. The 5-year bond yield has fallen from 1.01% in June/July to a range of between 0.80% and 0.90% since August. Bond yields typically lead fixed mortgage rates.

Sept. 21 Update

Additional rate cuts were made by two banks Canada on Tuesday.

Source

We are available anytime to talk about how these great rate changes can benefit your mortgage needs and financial goals.

Latest News: BC to See Boost in Housing Market

Latest News Trish Pigott 5 Aug

From the Canada Mortgage and Housing Corporation’s funding streams, the federal government has given a total of $349 million towards the construction of more than 800 new homes for British Columbians.

The 836 all-new homes will be spread across three projects developed by Wesgroup. These residential developments will be built in the areas of 100 Braid Street and 268 Nelson’s Court in New Westminster, as well as 8690 Jack Uppal Street in Vancouver.

All of these developments are located close to public transit, schools, and other vital services. The funding for these projects will be coursed through the CMHC’s Rental Construction Financing initiative.

“By providing financing for these three new rental housing projects to provide over 800 new rental units for families, our government is taking action to not only increase the supply of new rental developments here in British Columbia and across Canada, but to also provide housing options that are closer to jobs, services and amenities for middle-class families,” said Adam Vaughan, parliamentary secretary to the Minister of Families, Children, and Social Development.

“These developments provide quality housing accessible to a wide demographic, with great access to transit, amenities, services, and jobs,” added Beau Jarvis, president of Wesgroup. “This partnership demonstrates the successful implementation of a targeted government strategy and helps to address the challenges of delivering quality housing in dense urban areas.”

CHIP Reverse Mortgage

Latest News Trish Pigott 30 Jul

What is a reverse mortgage?

A reverse mortgage is a way for Canadian homeowners aged 55 or older to turn up to 55%* of the value of their home into tax-free cash. It lets you retire safely and securely in the home you love. It’s a loan secured against the value of the home. Unlike a traditional home equity line of credit or conventional mortgage, there are no monthly payments for as long as you live in your home. There’s no retirement like home.

The CHIP Reverse Mortgage is provided by HomeEquity Bank, a Federally Regulated Canadian Bank.

*some conditions apply.

Here are a few details about it:

  • Great for pensioners that have a large amount of equity but low monthly income
  • Available for condo’s, townhouses, and detached homes
  • Must live in the property
  • Applicants do not have to go through the government stress test
  • Income qualification is not required
  • $200,000 minimum home value
  • Mortgage can be set up to payout in a large lump sum or clients can draw a regular monthly payment to help with the cost of living and enjoy life doing what they want
  • Very simple process with minimal paperwork required

First Responder Mortgage Program™

Latest News Trish Pigott 28 Jul

First Responders are an integral part of our Canadian communities. From coast–to–coast, these are the people who put Canadians first and ensure the health and safety of this great country –and we wanted to give you something in return. The Dominion Lending Centres® First Responder Mortgage Program™ was designed exclusively for First Responders to provide a helping hand on their journey to and throughout homeownership. This program is backed by one of Canada’s largest banks and includes competitive rates and cash back incentives depending on your mortgage amount.

If you or someone you know is out there working hard to keep Canadians safe, we want you to know that I am here to provide you extra peace of mind for your home –and mortgage.

This program is eligible for the following individuals:

  • Police Officers
  • Paramedics
  • Firefighters (employed and volunteer)
  • Correctional Services
  • Border Services
  • Search & Rescue (employed and volunteer)
  • Registered Physicians
  • Registered Nurses

 

Please contact me today for more details!

Bank of Canada Holds Steady on Overnight Target Rate

Latest News Trish Pigott 21 Apr

Today, the Bank of Canada held its target for the overnight rate at the effective lower bound of ¼ percent. The Bank is also adjusting its bond-buying program from weekly net purchases of Government of Canada (GoC) bonds of $4 billion to $3 billion. This adjustment to the amount of incremental stimulus being added each week reflects the progress made in the economic recovery.

Finally, the Bank now suggests that the remaining slack in the economy could be fully absorbed by the second have of 2022–rather than 2023, suggesting that they may begin raising overnight interest rates before the end of next year. The Bank went on to aver that this timing is more uncertain than usual, however, given the uncertainty around potential output and the highly uneven impacts of the pandemic.

The Bank of Canada now believes that first-quarter growth in Canada is considerably stronger than they were expecting back in the January Monetary Policy Report (MPR). This partly reflects a better global backdrop, particularly in the United States. The US recovery is supported by a rapid rollout of vaccines and substantial fiscal stimulus, bringing spillover benefits to Canada through higher demand for exports and stronger commodity prices.

To read more from Dr. Sherry Coopers report, click the link below.

CLICK HERE

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