Date: July 31, 2023
Category: Newsletter
The Bank of Canada has been bee-lining towards a 2% inflation target number. Looking back at May and June, the numbers suggest the Canadian economy is slowing down.
Robert Kovcic, Senior Economist, BMO Capital Markets, suggests, “Maybe a little bit of softness (is) starting to creep into the economy.”
This statement was just after the July job numbers were released.
Most economists believe the BOC’s actions are achieving the desired outcome with flattening levels of consumer spending relating to housing and retail, even though we have solid demographics and population flows.
It’s evident that the over 500 basis points increase in a very short window is starting to have a broad impact.
There is no consensus on what the BOC will do at the September announcement, but there is much speculation that they will keep rates high and possibly another rate increase.
The five-year bond rate stays close to five percent and keeps the five-year fixed rate high. Last week, the five-year fixed rate reached over 6%. The last time we saw the five-year fixed over 6% was in 2008.
Not all economists can agree on what the BOC will do come September, but they all agree that there will not be a rate decrease.
My two cents:
It’s too early to guess what the BOC will do.
The August 15th CPI’s numbers will give us a clearer view, but as we know, the BOC does what the BOC wants, so I err on the side of caution and be ready for another increase. Be prepared for the worst and expect the best.
What should you do?
I’ve been saying it for months, so here’s the short version.
If you have a fixed-rate below 3%
- Increase your monthly payments and hit more of that principal while rates are low. This will help with payment shock when you come up for renewal, and your rate is higher than your current rate.
If you are in a variable rate mortgage where payments stay the same every month regardless of the Bank Of Canada increases.
- Most of you have hit your trigger rates, so the first step here is to connect with the lender and ask them how much you need to increase your payment to cover just the interest.
- Then decide whether you want to pay just interest until rates go back down or more than interest payments. Remember, this is a moment in time.
If you’re in a variable or adjustable rate mortgage where the payment is too high and no longer manageable, connect with us, and we can help you understand your options.
- You always have three options:
- Stay in the current term
- Lock into a fixed rate
- Move to a new lender
- Timing is essential for the last two options, so please connect with us, and we can review the options that best suit you. Want to connect? click here
Let’s talk about Equity and Spousal Buy-out. I have spent most of July speaking to clients about these two topics.
Equity
More specifically, how can the Equity in your home help you?
Most Canadians have approx 73% home equity available in their homes.
Why does this matter?
Most of us have been taught to pay off the mortgage, so that has been our sole focus. Our baby boomer parents have conditioned us to “be mortgage free,” so we have all aggressively paid down our en mortgage.
On our way to paying down the mortgage aggressively, the average Canadian holds approximately $21,000 of household debt, paying, on average, 19% interest. Therefore my conversations have been around using your home’s Equity to pay down consumer debt and adding the additional money you would typically put on your 19% debt towards the mortgage once we amalgamate the debt into the mortgage. This is not a get-out-of-jail card but a smarter way to pay off that debt quicker. I encourage my clients to continue making an increased payment as if the debt still existed at 19%, and you will see that it will decrease much faster even at 6%
Another critical factor is if you currently don’t hold debt, but are looking to make home improvements in the future, let’s look at setting up a line of credit so that you do not use consumer debt to facilitate your home renovations.
Spousal-Buy Out
Divorce is not something we plan for; often, there are many questions and unknowns, and we are left unsure of how to proceed.
As someone who has been through this, I encourage you to have a quick and confidential call. The calls always start the same “Please don’t tell my partner/spouse that we’ve spoken,” and my response is always. “Our conversations are private and confidential, and I will do all I can to help you both come away with what’s best for each of you.” I often work with both parties, making it amicable and ensuring everyone gets what they need/want.
Let me end this with your first step. Your first step is to connect with us and review your numbers before creating your separation agreement. Why? Because what gets written into that separation agreement will either hurt or help you as you move on in life, we want to do all we can to ensure that you can both move on financially. If done correctly, one spouse can buy out the other and stay in the marital home.
If you have a question, connect with me; I’m happy to help.
We Care – Full Backpack Equals Happy Tummies
For July, August and September, our team is focused on supporting Food4Kids with donations to feed four kids for an entire year.
We could ask you for food donations; however, we’ve been told that a cash donation will go further as Food4Kids has partnerships with local grocery stores that allow them to purchase food much lower than you and I could. This means that every dollar we donate will stretch further than the actual food packages donated.
So, we’re calling on all compassionate hearts to support with donations to Food4Kids. Our goal is $2,000 from now until the end of September. Along with your generosity, we will help provide full backpacks to feed four kids for an entire year through the “Full Backpack Equals Happy Tummies” incentive.
Every contribution counts, so let’s make a difference and bring smiles to these little faces! 🎒🍎🧡 #Food4KidsHalton #FullBackpacksHappyTummies #TogetherWeFeed #SupportChildhoodNutrition
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To learn more connect with Ana Cruz 905.870.0513 or email at ana@askanacruz.ca
