(July 13, 2023)

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Yesterday, the Bank of Canada raised the overnight rate to a 22-year high of 5% which translates to a consumer prime rate of 7.20%. Additionally, they revised their forecast for inflation to hit the 2% target by mid-2025 (6 months later than before), signaling that interest rates will remain higher for an extended period. While this news may come as a disappointment, the economy is still experiencing excess demand, and growth is expected to continue supported by various factors. However, the housing market presents challenges, with rising prices and limited supply.

Impact on Inflation and Housing Market: The unexpected surge in housing resales, coupled with a shortage of supply, has driven house prices higher than initially anticipated by the Bank of Canada in January. As a result, inflation could potentially increase by approximately 0.3% by the end of 2023 compared to an earlier outlook in January. This situation is further compounded by the lack of new housing starts in the current economic conditions, despite a substantial increase in population (addition of 1.2 immigrants).

What should I do?

Given the current circumstances, it’s crucial to approach your next mortgage decision with caution and consider various factors. Here are some tips to navigate the mortgage landscape:
-Explore all available mortgage terms ranging from 1 to 10 years.
-Consider popular terms such as 2-4 year fixed rates.
-Be aware of amortization options to potentially ease the payment shock when transitioning to higher interest rates.

The three tiers of lending

TIER 1-> Toughest qualification guidelines -> 5.15% to 6.49% -> up to 30 years amortization -> 1-10 year terms

TIER 2-> Loosened qualification guidelines -> 5.99% to 7.99% -> up to 35 years amortization -> 1-5 year terms

TIER 3-> minimal qualification criteria -> 10.95% to 14.95% -> interest only payments -> 1 year renewable terms

What happens next?

With the Bank of Canada’s announcement in the rearview mirror, attention now turns to the bond markets, which influence fixed mortgage rates. Following yesterday’s announcement, bond market rates have experienced a slight decrease but only after a steep 30 basis point increase since June 30. It will be interesting to see how the bond markets react going forward. Fixed mortgage rates correlate directly with bond yields, if they increase, so do fixed rates (and vice versa).

Conclusion

The Bank of Canada’s rate hike and revised inflation forecast have implications for borrowers and the housing market. Being proactive in mortgage selection, considering alternative lending options, and staying updated on market trends will empower individuals to make informed decisions. As the situation evolves, it’s essential to remain vigilant and adapt strategies accordingly. 

Wondering what to do next? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko.

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Contact Marko, he’s a Mortgage Broker!

604-800-9593 cell/text/WhatsApp | Vancouver (Click Here to schedule a call with Marko!)

403-606-3751 cell only | Calgary (Click Here to schedule a call with Marko!)

Email: gelo.m@mortgagecentre.com

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(June 25, 2023)

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Consumer spending habits are causing central banks worldwide to be concerned. In Canada, many believed that there would be a sustained pause in raising the overnight rate. However, a few weeks ago, the Bank of Canada surprised everyone with a 25-point increase, leading to a rise in the prime rate from 6.70% to 6.95%. Suddenly, we found ourselves in a similar situation to what we experienced in October when fixed rates surged from the 4’s to the 5’s. Moreover, there is speculation that another 25-point increase may be announced on July 12th.

While it may seem like we can only sit and wait until the next announcement, there is more to consider. For instance, the Bank of Canada announcements and their impact on people’s mindsets, both at home and in boardrooms, as well as in the mortgage marketplace across the country. It’s important to note that the interest rates mentioned in these announcements relate to the overnight lending rate, which currently stands at 4.75%. This rate is what banks charge each other when lending money. Banks must maintain a minimum reserve of cash to ensure liquidity in the banking sector. When they fall short of this requirement, they borrow from banks with surpluses. Consequently, when the overnight lending rate changes, banks typically pass on the increase or decrease to their customers through Prime Rate. Currently at 6.95%, Prime Rate is 2.15% higher than the overnight lending rate, representing the banks’ profit margin. This rate adjustment immediately impacts any financial product linked to Prime Rate, including credit cards, personal lines of credit, car loans, and variable rate mortgages.

Indirectly, fixed rate mortgages are also influenced by these changes. However, there is a significant difference in the way fixed rates behave compared to the orderly adjustments of Prime Rate. Fixed rates do not have a formal announcement date or an explanation for rate changes. This lack of transparency often catches people off guard when they inquire about mortgage renewals, purchases, or refinancing. While individuals may believe they are well-informed after hearing the Bank of Canada rate announcement on the radio, fixed rates have fluctuated as much as 50-75 basis points before or after these announcements, without any prior notice or media coverage.

In summary, while the Bank of Canada announcements provide macro-perspective information that offers clues for mortgage decisions, it is crucial to recognize their limitations. Mortgage seekers need to consider a wealth of information regarding fixed rates, term lengths, rate variations, and amortizations. This micro-perspective detail can make a significant difference in their mortgage outcomes. Unfortunately, fixed rate changes are rarely publicized or covered in detail by the media due to their volatility and the multitude of available rates and terms. Keeping track of these changes can be challenging even for mortgage brokers. Therefore, if you’re in the market for a mortgage, whether it’s for a purchase, refinance, or renewal, it’s essential to seek advice from a micro-perspective rather than relying solely on the vague macro-environment portrayed by Bank of Canada announcements. While the Bank of Canada’s information is valuable, it doesn’t fully translate to the complex spectrum of mortgage products available in the marketplace. Conduct thorough research and gather as much information as possible before making any decisions.

Wondering which term is right for you? Call or text Marko Gelo right now at 604-800-9593, or Click Here to schedule a free, no-obligation phone call with Marko.

Don’t want to miss out on the next blog post?  Click Here to have future issues emailed directly to your inbox!

Contact Marko, he’s a Mortgage Broker!

604-800-9593 cell/text/WhatsApp | Vancouver (Click Here to schedule a call with Marko!)

403-606-3751 cell only | Calgary (Click Here to schedule a call with Marko!)

Email: gelo.m@mortgagecentre.com

Facebook

@markogelo (Twitter)