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Welcome to our monthly Better Mortgage Select newsletter - this is our June 2024 edition.

 

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


   

For the first time in over four years, the Bank of Canada has cut its key interest rate, marking an official end to an unprecedented, and relentless, rate-hiking journey that began in March 2022. The cycle officially goes into the record books as lasting twenty-seven months and included a total of 4.75% in interest rate increases, effectively tripling interest rates across the country. This change came, despite earlier assurances by the Central Bank to Canadians in late 2020, that they "can remain confident that interest rates will be low for a long time.”

 

Assuming inflation continues to level off or even decrease further, the Bank of Canada will likely have no choice but to continue providing stimulus to our currently struggling economy. This is expected to come in the form of consistent 0.25% rate decreases. Some ‘Big Six’ bank economists have even predicted that this rate-cutting cycle could result in a total reduction of 1.50% to 2.50% over the next 18-24 months, depending on if, and how much, the economy rebounds during that time. 

 

The next Canadian inflation data is set to be released on June 25th. Following last month's 2.7% report on headline inflation, anything below that figure will be considered a win, as the Bank of Canada stated earlier this year that they expect inflation to hover around 3% until the second half of the year. The report for June will cover the month of May, indicating that inflation is ahead of the Bank of Canada’s targets.

 

The month of July appears to be set-up for potential fireworks with another inflation report coming out on July 16th, followed by a Bank of Canada meeting a week later, on Wednesday July 24th.  The possibility certainly does exist that if the next two inflation reports show inflation cooling faster than expected, then Bank of Canada may feel forced to deliver another rate drop, as opposed to waiting until September's meeting.

 

It's shaping up to be an interesting summer…

   
   

  • If you have a variable/adjustable-rate mortgage with Scotiabank, National Bank, or any lender where your mortgage payment changes whenever the Bank of Canada changes rates, you will receive a notice in the mail showing a 0.25% decrease in your interest rate and your new mortgage payment amount.

  • If you have a variable rate mortgage with TD, BMO, RBC, CIBC, or any lender where your mortgage payment does not change when the Bank of Canada changes rates, you will still receive a notice in the mail indicating that your interest rate has decreased by 0.25% and that there has been a reduction to your amortization period, with more of your mortgage payment going towards your principal balance and less going towards interest.


  • Canadian bond yields, which are tied to the pricing of fixed-rate mortgages, may see a continued downtrend following this news, especially if it appears that the Bank of Canada may need to cut rates faster and more significantly than expected. If GDP data continues to surprise to the downside, the market will have to price in more rate cuts, with bond yields likely leading the way.

 

  • The stress test and qualifying rates will now come down. Anyone applying for a variable rate mortgage has just gained additional purchasing power in the form of a higher pre-approval amount. Each time the Bank of Canada decreases interest rates, pre-approval amounts will adjust accordingly.

 

  • Anyone with an upcoming mortgage renewal within the next 18 months should contact our office for a preliminary discussion to set key follow-up dates and begin strategy discussions. Our office can secure interest rates for you as much as 120 to 300 days in advance of your maturity date (depending on your current lender). Our renewal team typically begins reaching out to you eight months before a mortgage is set to renew, but please feel free to reach out sooner - we would be more than happy to get the process started – info@bmselect.ca.

   
   
   
   
   
     
   
   
   

We can't look at the data and scenario's above without acknowledging that all of this depends on inflationary data not spiking. Any significant spike in inflation would be enough to prompt the Bank of Canada to hit the pause button immediately and take more time to assess all components of the economy at that time. It must be noted that our economy is entering a very delicate period over the next couple of years. It is certainly the hope that the Bank of Canada can find a balance between interest rates and economic growth. However, if these interest rate decreases end up resulting in a spike in inflation, while at the same time not doing enough to stimulate economic growth along with unemployment continuing to rise, that would signal that our first taste of stagflation since the 70's & 80's.


   

I think we can all agree that if you could secure a 5-year fixed rate in the range of 3.69% to 3.99% today, you would likely sign the papers for it every day of the week.  Would it be nice to see a 5-year fixed rate again at 2.49% or even 2.99%? Of course. But is that going to happen again?  It's likely a longshot and are you willing to take the risk of waiting and possibly losing out to higher rates in the future? If we look back at interest rates with a longer perspective, it should be evident that a fixed rate with a '3' in front of it is something we should always consider. It provides security at an affordable interest rate, and I think we can all agree that "security" is likely to be necessary over the next 1-5 years, given the current financial issues and constraints we see across the globe.

 

For the 5-year fixed rate to get down to the 3.69%-3.99% range, we need to see the Canadian bond yields down about 1.00% - 1.50% from current levels.  If that is where Fixed rates are determined to land, it will undoubtably take some time to get there as the Bond market has already been pricing in several Bank of Canada rate cuts.  

 

Strategically, if we think it may take 12-18 months for these longer-term fixed rates to end up in our crosshairs, then flexible mortgage terms are what we would want to look hard at today.  Variable rate mortgages along with 1-year and 2-year fixed rate terms are more likely to allow someone to take advantage of lower rates soon.  All variable rate mortgages have a “conversion” clause, allowing you to lock in the bank's best fixed rate at any time during your variable rate term. It is extremely important to stay updated on fiscal and monetary policy to ensure that you may have a chance to secure a better interest rate than what is currently available today.   Do not hesitate to reach out to us, even if it’s just for a basic conversation to discuss strategy and how you may benefit from future lower interest rates as they begin to arrive – info@bmselect.ca.

   
   

First, thank you to all of those that attended our webinar last month that was geared towards real estate investors.  We had over 100 attendees show up, despite being a beautiful day outside, so thank you for your patronage.

   
   

As we enter a pivotal time with interest rates, it’s very important for us at Better Mortgage Select to keep you - our clientele, up to date with all changes in the mortgage world, helping to educate you along the way. On Wednesday, July 24th, after the Bank of Canada’s next interest rate meeting, we will be hosting a free webinar. We will review the first half of the year and provide a detailed look at where we think interest rates are headed, and what clients should be doing during this crucial period.

   
   
   
   
     
   

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: