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Welcome to the monthly Better Mortgage Select newsletter, this is our August 2024 edition.

 

Brought to you by Daniel Patton, Michael Zanzini, Lorenzo Podda, and our President, Dave Butler.





   

Yesterday, Canada's CPI inflation data for the month of July was released, and we saw headline inflation come in at 2.5%, down from 2.7%, and now the lowest recorded inflation handle we have seen in 40 months!!

 

For comparison: in January 2020, when the world had not yet been impacted by a global pandemic, headline inflation that month came in at 2.4%.  Dare we say it?  Inflation appears to be back to pre-pandemic levels.  

 

While this is something that we should certainly rejoice in, when we dig a little deeper, doing a comparison between the 2.4% inflation number from January 2020 to this most recent July 2024 report that showed 2.5%, we see one glaring difference - shelter inflation is significantly higher in the July 2024 report.  That means if we had the same shelter inflation today as we did in January 2020, our ACTUAL Canadian inflation number for July 2024 would be less than 2%! That's right, it would be less than the 2% target that the Bank of Canada has, and a sign that our economy will require much more stimulus or risk of going into a deep recession.

 

The Bank of Canada clearly has a problem on their hands, case in point, see the graph below:





   

When that BLACK line (Bank of Canada overnight rate) is above the RED line (headline inflation) for an extended period, it's a glaring sign that the Bank of Canada has overtightened and will now have to work hard to get interest rates back in line with the current inflationary environment.

   
   

Not only do we firmly believe that the Bank of Canada will be reducing interest rates by at least 0.25% in two weeks at their September 4th interest rate meeting, but we also believe we could be in store for even more interest rate cuts at the October 23rd meeting, as well as the December 11th meeting.  And we aren't the only ones expressing this opinion. 





Andrew Grantham, a senior economist at CIBC Capital Markets, had this to say: 

   

To play this out, if we were to get 0.25% cuts at each of the final three Bank of Canada meetings this year, we could see the prime rate in Canada down to 5.95% by the end of this year. This would mean that most people in variable rate mortgages would be experiencing interest rates in the range of 4.95%-5.35%, back to levels last seen in October 2022, and with more relief likely on the way in 2025.



 

Many economists are predicting that we’ll see the Bank of Canada prime rate get as low as 4.45% to 4.70% by the end of 2025, with most variable rate holders having a '3' in front of their interest rate.  In January of this year, you would have been hard pressed to find an economist willing to predict 1.25% (five rate reductions) in interest rate drops for 2024, but here we stand on the doorsteps of that scenario playing out.  And with more interest rate relief in the cards for 2025, it makes choosing the correct mortgage term one of the most important mortgage decisions of this decade.

 

I'm sure all of us that had a mortgage renewal over the last couple years would have gleefully signed for a 5-year fixed rate in the range of 3.69%-3.99%, if it was offered to us… well, we may not be too far from that becoming a reality.  

 

For those with a mortgage renewal on the horizon and for those of you that are currently struggling with higher interest rates, the ability to lock in a 5-year fixed rate under 4% is a very real possibility in the not too distant future, so it is incredibly important that you strategize and build a game plan on how you can take advantage of that, when the time comes.

   
   

For the next couple of years, we will all likely get very sick of hearing how Canada has more homeowners with mortgage renewals coming up in 2025 and 2026 then it’s ever had. However, it is very true.  A lot of people in late 2022 and most of 2023 were taking 1 to 3-year fixed terms with the hopes that when their mortgage comes up for renewal again in 2024 - 2026, that interest rates would be lower, and they could then go back to the usual 5-year fixed low rate that they enjoyed in the past.  Combine that with all the 5-year fixed and variable rates taken by people in 2020 and 2021, and that's how you can see that we do in fact, have the most amount of mortgage renewals coming up in the history of our country.  

 

It is important to be realistic when strategizing and game planning for your upcoming mortgage renewal.  While it would be nice to see the 5-year fixed rates come back down to 2.49% - 2.99%, we believe that could be wishful thinking.  Based on our interest rate studies, we believe that the 5-year fixed rates could ultimately bottom out in the 3.69% - 3.99% range, likely sometime next year.  How long these rates stay down at that level is sadly unpredictable.  So, that makes it much more important for you to stay informed and be ready to pounce, if and when these rates become available.  

 

Today, we are seeing the 5-year variable rate as the ultimate vehicle to get you to those lower rates in the future.  With a clear consensus among leading economists that there are many more rate cuts on the horizon for the next year, the idea of riding an elevator down and then exiting (locking into a fixed rate at no cost) when you find the floor (rate) that is best for you, appears to be the most optimal.

 

Sure, taking a 3-year fixed rate today at a lower rate than today's current variable pricing could seem wise now, but what if next summer’s variable rates are rivaling today's 3-year fixed rate?  What if those in variable rates will be able to lock into a 3.79% fixed rate for 5 years next summer (at no cost) while those with 3-year rates will have to wait another 2 years to make a move?  The penalty to break a 3-year mortgage with 2 years remaining on it could end up being quite large and negate the savings to a lower rate.  We can sense that there may be some 'term regret' in 2025 for those that may not be able to take advantage of low 5-year fixed rates when they become available.  

 

For the last two years during this period of extreme interest rate volatility, our stance at Better Mortgage Select was this: If it were possible for our clients to choose, we had them lean towards mortgage terms that were flexible, allowing a borrower to take advantage of lower interest rates once they came down again. Understandably, there were situations and scenarios over the last two years which forced the hands of some to take longer terms - but even in those situations, there may end up being positive solutions through a full ITBS analysis (interest to breakage savings).





We are even seeing it today: Just yesterday we were speaking to a client that signed into a 3-year fixed rate last summer at 6.29% and was inquiring as to what their penalty would be to break the mortgage, since they want to be able to take advantage of the lower rates being offered today.  

 

Bottom line: Please take your upcoming mortgage renewal very seriously.  Choosing the right term, having the right strategy and being able to take advantage of lower rates when they become available, will be paramount to saving you and your family serious amounts of money over the coming years.

   





Speaking of mortgage renewals, our next free webinar in just over a month will be going in-depth as we discuss refinancing, debt consolidation, and how to handle your upcoming mortgage renewal.  Do not miss this webinar, as we will take a deep dive into these topics and will have an extended Q & A session so that we can answer all your need-to-know questions.  Our very own President, Dave Butler, will also be there to provide his decades of experience and insight.  You won't want to miss this one!

   
   
   
   

This month's Out 'N' About is a little different from months past, as some members of our team took some much-needed vacation time away from the office to recharge and get ready for what is set to be a very busy finish to the year.

A few weeks ago, our Vice-President and Director of Sales, Daniel Patton, visited Cleveland, Ohio, to engage with local investors about opportunities in multi-family homes and cross-border investments. During his stay, he also took the opportunity to attend various events in the city, including the 2024 National Card Show. This prominent event featured over 400 vendors showcasing rare and collectible cards from various sports and genres as well as celebrities and former professional athletes (sport card collecting is a huge hobby and passion of Daniel’s!).



   
   
     
   

Sr. Mortgage Agent, Michael Zanzini, was visiting Italy for a few weeks with his family. Michael started his journey in Rome and then made his way to Sicily. For those that follow us on our social media, Michael made a quick video announcing the most recent prime rate decrease while being at the top of a mountain overlooking the city of Castellammare Del Golfo, Sicily.  Michael met up with real estate agents and developers to check out the real estate available and ongoing projects in the area. Michael attended a few tours to see on going developments which included some 3 to 4-bedroom private villas being built near San Vito Lo Capo, Trapani, Scarpello, and the Castellammare Del Golfo area, with a few being in very desirable gated communities, all for less than $500,000 CDN.  It was very interesting to see the wide range of real estate available there in comparison to the Canadian market. 

   
   
     
   

Finally, our very own President, Dave Butler, was able to spend this past month in Greece with his wife, Anna, and son, Maximus.  Dave's in-laws own real estate in different parts of Greece, and he was able to learn about some interesting developments coming down the pipe out there, as well as getting a crash course on the mortgage world in Greece (very, very different than Canada).  And of course, they spent some time enjoying the beautiful beach bars that Greece has to offer.





   
     
   

Just a friendly reminder to come visit us on our socials, where we put out a ton of videos with tips and information to help you navigate the wild world of mortgages! Check out the links below and give us a follow!

   
   
   
     
   

As always, if you have any questions or want to do some mortgage planning, feel free to reach out to us at: