The Bank of Canada Cut Rates by 25 bps On Tariff Concerns

General Darla Nicholson 12 Mar

The Bank of Canada (BoC) reduced the overnight rate by 25 basis points this morning, bringing the policy rate down to 2.75%, within the neutral range of 2.25%—2.75%. Tariff tremors have already led to a decline in consumer confidence and spending, a weakening labour market, and a decline in business investment. Compound that with falling population growth, and you see why the Governing Council took the overnight rate down again even though they state that monetary policy cannot offset the impacts of a trade war.

Trade wars lead to higher prices and slower growth. The rise in prices causes consumers to tighten their belts, concerned about the impact of tariffs on their income and investments. Today, there is a 25% tariff on steel and aluminum exports to the US. This impacts Canada the most as it supplies roughly 80% of US aluminum demand. The EU introduced retaliatory tariffs on US goods in response. Canada added to its retaliation. Recent data suggest the US economy is slowing.

Monetary policy remains restrictive as the real overnight rate (2.75% minus the headline inflation rate) is 85 bps, up from the historical average of 60 bps. Five-year Government of Canada bond yields increased on the news to 2.65% compared to 4.05% in the US. The Federal Reserve is not expected to cut rates when it meets again this month.

Despite relatively strong GDP growth in Canada in the second half of last year, home sales and hiring began to slow in late January due to tariff threats, and more tariffs are yet to come. On March 20, China is expected to impose 100% retaliatory tariffs on Canadian canola oil, while pork and seafood will face a 25% levy. The Chinese tariffs are a push-back against Canada for imposing a 100% levy on electric cars from China and  25% on steel and aluminum.

On April 2, the US announced it will impose reciprocal tariffs on nations that have levied tariffs on US goods. President Trump has also said he is considering imposing retaliatory tariffs on Canadian dairy and lumber.

“We’re now facing a new crisis. The economic impact could be severe depending on the extent and duration of new US tariffs,” Macklem said in his prepared remarks.

Macklem called the uncertainty of the tariff dispute “pervasive” and said that it was “already causing harm.” Officials said the “continuously changing” US tariff threat was hitting consumers’ spending intentions and limiting businesses’ plans to hire and invest.

At the same time, Macklem said the bank “will proceed carefully with any further changes” to borrowing costs, and officials would “need to assess both the upward pressures on inflation from higher costs and the downward pressures from weaker demand.”

Bottom Line

These are uncertain times. The US is determined to impose worldwide tariffs, disproportionately hitting Canada, Mexico, and China, the US’s top trading partners. This is a misguided neo-Mercantilist policy. Mercantilism assumes that the global economic pie is fixed, so if one country prospers, another must fail. This idea of a zero-sum game was debunked in the 18th century by Adam Smith and others who showed that if countries have a competitive advantage in various products and services, all are better off by producing and trading those products with the rest of the world. It is not a zero-sum game. The economic pie grows with trade. This was the idea behind globalization and the USMCA free trade agreement.

Given Canada’s vulnerability to tariffs, the economy will suffer more than the US, which has a relatively closed economy (where exports are a small proportion of GDP). Prices will rise depending on the duration and size of the coming tariffs, but mitigating the inflation will be the weakness in economic activity. Stagflation, a buzz-word in the 1970s, is back in the lexicon.

We expect the BoC to continue cutting the policy rate in 25-bps increments until it reaches 2.25% this June, triggering a rebound in home sales. Layoffs and spending cuts will dampen sentiment, but lower interest rates will bring buyers off the sidelines.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Tariffs and Trade War – What the Heck??

General Darla Nicholson 8 Mar

Trump has imposed tariffs of 25% on goods coming from Mexico and Canada, 10% on Canadian energy, and an additional  10% on goods from China. He justified these actions by claiming they would force Mexico and Canada to address issues related to undocumented migration and drug trafficking. However, while precursor chemicals for fentanyl come from China and undocumented migrants enter through the southern border with Mexico, Canada accounts for only about 1% of both issues.

The Wall Street Journal, typically considered a conservative publication, criticized Trump, labelling this as the “dumbest trade war in history.” The Journal stated, “Mr. Trump sometimes sounds as if the US shouldn’t import anything at all, that America can be a perfectly closed economy making everything at home. This is called autarky, and it isn’t the world we live in or one that we should want to live in, as Mr. Trump may soon find out.”

This misguided tariff policy will cause untold damage to the global economy, including the US. Americans will suffer the impact of higher prices and shortages of key

products imported from Canada and Mexico. The various North American free trade agreements aimed to improve manufacturing efficiencies and meld the three economies to maximize productivity and the free flow of essential inputs into production. Canada is the number one supplier of steel and aluminum and there are no readily available substitutes for these crucial inputs. A plethora of products and construction activity use steel and aluminum. Aluminum is produced in Quebec where hydroelectricity is plentiful and cheap. US farmers depend on Canadian potash and auto parts, and Canada is the number one exporter of oil and gas to the US.

Consider the US auto industry, which operates as a North American entity due to the highly integrated supply chains across the three countries. In 2024, Canada supplied nearly 13% of US auto parts imports, while Mexico accounted for almost 42%. Industry experts note that a vehicle produced on the continent typically crosses borders multiple times as companies source components and add value most cost-effectively.

This integration benefits everyone involved. According to the Office of the US Trade Representative, the industry contributed more than $809 billion to the US economy in 2023, representing about 11.2% of total US manufacturing output and supporting 9.7 million direct and indirect US jobs. In 2022, the US exported $75.4 billion in vehicles and parts to Canada and Mexico. According to the American Automotive Policy Council, this figure rose 14% in 2023, reaching $86.2 billion.

Without this trade, American car makers would struggle to compete. Regional integration has become an industry-wide manufacturing strategy in Japan, Korea, and Europe. It leverages high-skilled and low-cost labour markets to source components, software, and assembly.

As a result, US industrial capacity in automobiles has grown alongside an increase in imported motor vehicles, engines, and parts. From 1995 to 2019, imports of these items rose by 169%, while US industrial capacity in the same categories increased by 71%. Thousands of well-paying auto jobs in states like Texas, Ohio, Illinois, and Michigan owe their competitiveness to this ecosystem, which relies heavily on suppliers in Mexico and Canada.

Tariffs will also cause mayhem in the cross-border trade of farm goods. In fiscal 2024, Mexican food exports comprised about 23% of US agricultural imports, while Canada supplied some 20%. Many top US growers have moved to Mexico because limits on legal immigration have made it hard to find workers in the US. Mexico now supplies 90% of avocados sold in the US.

Yesterday, the President’s tariff announcement led to an immediate sell-off in stock markets worldwide. Bonds, seen as a safer haven, rallied sharply, taking longer-term interest rates down sharply in anticipation of a meaningful slowdown in economic activity. The Canadian dollar sold off sharply, though it clawed back some of its losses overnight. WTI oil prices dropped 2% yesterday and continued to decline today.

Bottom Line
This is a lose-lose situation and President Trump underestimates the negative fallout of his actions at home and abroad. Retaliation will be swift. Americans will balk at the disruption of supply chains (think waiting for months for a new car) and the increase in the price of many products.

Legendary investor, Warren Buffet, called the tariffs an “act of war.”

Before the tariffs were imposed, we expected roughly 2% growth this year. Assuming the tariffs remain in place for a year, the Canadian economy will plunge into recession. We will likely see a few quarters of negative growth before growth gradually resumes.

Despite the inflation risk, the Bank of Canada will respond aggressively to minimize the meltdown in labour markets and the economy in general. When the Governing Council meets again on March 12, we expect another 25 bps cut in the overnight policy rate, bringing it down to 2.75%. Over the next year, we expect the Bank to continue to ease credit conditions, and a 2.0% overnight rate is likely.

The Canadian 5-year yield, a bellwether for setting fixed mortgage rates, has fallen to 2.51%, its lowest level in nearly three years. Lower interest rates are favorable for housing markets, although the inevitable rise in unemployment and drop in spending will mitigate this effect.

Dr. Sherry Cooper
Chief Economist, Dominion Lending Centres

Interest Rate Update

General Darla Nicholson 1 Mar

As of March 1, 2025, mortgage rates in Canada have experienced notable shifts, influenced by recent economic developments and monetary policy adjustments.

Bank of Canada Rate Cuts

Between June 2024 and January 2025, the Bank of Canada implemented six consecutive rate cuts, totaling a reduction of 200 basis points. The most recent cut on January 29, 2025, lowered the benchmark interest rate by 0.25%, bringing it down to 3%. This series of cuts reflects the Bank’s response to declining inflation, which stood at 1.8% in December 2024, and aims to stimulate economic growth.

Impact on Variable-Rate Mortgages

These rate cuts have directly affected variable-rate mortgages and home equity lines of credit (HELOCs), as their interest rates are tied to lenders’ prime rates. Following the January rate cut, the prime rate at most lenders decreased to 5.2%. For borrowers, this translates to reduced borrowing costs and lower payments on some variable and adjustable loans.

Fixed Mortgage Rates

Fixed mortgage rates are primarily influenced by government bond yields rather than the Bank of Canada’s benchmark rate. As of March 1, 2025, three-year fixed mortgage rates are available from 4.4% at some brokerages, while five-year fixed rates are showing from 4.19%. These rates have inched down following a decline in bond yields, providing borrowers with more favorable terms.

Rates from Major Banks

Canada’s major banks offer competitive mortgage rates. For example, the Royal Bank of Canada (RBC) provides various fixed and variable rate options, with special offers for new mortgages and those switching to RBC. Similarly, TD Canada Trust offers a range of fixed and variable mortgage rates, with a 120-day rate hold for pre-approved mortgages, allowing borrowers to secure current rates even if interest rates rise during that period.

Considerations for Borrowers

When evaluating mortgage options, borrowers should consider:

  • Amortization Period: Insurable mortgages in Canada have a maximum amortization period of 25 years.  However, with a down payment of at least 20%, borrowers can access mortgages with longer amortization periods, such as 30 years. While this may result in lower monthly payments, it could come with a slightly higher interest rate and more interest paid over the life of the loan.

  • Pre-Approval: Obtaining a mortgage pre-approval can lock in current rates for a specified period (e.g., 90 to 120 days), providing protection against potential rate increases while shopping for a home.

  • Fixed vs. Variable Rates: Fixed rates offer stability with consistent payments over the term, while variable rates may fluctuate with market conditions, potentially leading to lower costs if rates decrease further.

In summary, the recent monetary policy easing by the Bank of Canada has led to more favorable borrowing conditions for both variable and fixed-rate mortgages. The only way to know the best available options is to connect with your mortgage broker and get organized a few months before you need your financing.  In the world of home finance it truly pays to be organized and proactive.

What to do when you need to RENEW!

General Darla Nicholson 29 Jan

In 2025, a significant number of Canadian homeowners will face mortgage renewals, with over 1.2 million mortgages set to expire.   85% of these were initiated when the Bank of Canada’s policy rate was at or below 1%.

Given the current rate environment, even with anticipated reductions, many borrowers will encounter higher interest rates upon renewal.  Renewing at higher rates will likely lead to increased monthly mortgage payments which could throw a consumers budget out of balance.

Strategies to Mitigate Impact:

Find a Mortgage Broker: Find a broker you like and feel comfortable with – this should be a lifelong relationship. With direct lender relationships with all the top banks/monoline lenders/credit unions, we can provide access to a broader range of options, including access to lender promotions and rate specials.

Consider Amortization Adjustments: Extending the amortization period can lower monthly payments, though it may increase overall interest paid.

Leverage Home Equity: Utilizing accumulated home equity might offer opportunities to refinance under more favorable conditions.

Financial Planning: Assess your financial situation to accommodate higher payments, potentially adjusting budgets or increasing savings to manage the transition.

Get Organized: Pull together your last two years income documents (T4s, Notice of Assessment, T1), your current mortgage statement, property tax statement, and current list of assets/values.

Market Outlook:

While some experts predict potential rate reductions by the Bank of Canada through 2025, significant declines are uncertain and cannot be predicted. Whatever the case, one thing is for sure, and that is that this mortgage environment is significantly different than when you last secured a mortgage!  Variable rates have been (thankfully) declining steadily, and fixed rates are down, and up and then down again…..where does that leave consumers?  The spread between fixed and variable mortgage interest rates in Canada varies depending on the lender and the specific terms of the mortgage, but has narrowed with every Bank of Canada interest rate decrease, making the decision one that must be closely analzyed alongside your personal budget.  It is absolutely necessary to work with a mortgage broker so they can explain all the options available to you and advocate to lenders for you, knowing your personal circumstances more intimately.

The number one factor in efficiently securing a competitive mortgage rate at renewal is proactive organization.  In today’s financial environment, timing is key – the more time to prepare the better.  With rate specials coming out regularly, it is those that are ready to act quickly that will succeed.  Most often, lenders send out rate specials with a specific set of criteria the client must meet….if you can qualify, it’s best to get your deal into the queue asap before the lender’s business volumes explode with new business as a result of their promotion.  If we have your file set up and all the required documents on hand, we can move on any opportunities that present themselves.

It would be wise to connect with a mortgage broker 3-4 months prior to your mortgage renewal date.  Together, we can discuss your current financial circumstances, rates, and potential options that might suit you.  I offer my clients the opportunity to build a strong lifetime relationship together navigating financial needs as they change, as well as discounted interest rates and discounted legal fees through my colleague legal firm Summit Law.  It’s a win/win/win!

 

New Gov’t Changes Make Home Ownership More Feasible

General Darla Nicholson 16 Sep

Canadians work hard to be able to afford a home. However, the high cost of mortgage payments is a barrier to homeownership, especially for Millennials and Gen Z. To help more Canadians, particularly younger generations, buy a first home, new mortgage rules came into effect on August 1, 2024, allowing 30 year insured mortgage amortizations for first-time homebuyers purchasing new builds.

The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance, today announced a suite of reforms to mortgage rules to make mortgages more affordable for Canadians and put homeownership within reach:

  • Increasing the $1 million price cap for insured mortgages to $1.5 million, effective December 15, 2024, to reflect current housing market realities and help more Canadians qualify for a mortgage with a downpayment below 20 per cent. Increasing the insured-mortgage cap—which has not been adjusted since 2012—to $1.5 million will help more Canadians buy a home.
  • Expanding eligibility for 30 year mortgage amortizations to all first-time homebuyers and to all buyers of new builds, effective December 15, 2024, to reduce the cost of monthly mortgage payments and help more Canadians buy a home. By helping Canadians buy new builds, including condos, the government is announcing yet another measure to incentivize more new housing construction and tackle the housing shortage. This builds on the Budget 2024 commitment, which came into effect on August 1, 2024, permitting 30 year mortgage amortizations for first-time homebuyers purchasing new builds, including condos.

These new measures build on the strengthened Canadian Mortgage Charter¸ announced in Budget 2024, which allows all insured mortgage holders to switch lenders at renewal without being subject to another mortgage stress test. Not having to requalify when renewing with a different lender increases mortgage competition and enables more Canadians, with insured mortgages, to switch to the best, cheapest deal.

These measures are the most significant mortgage reforms in decades and part of the federal government’s plan to build nearly 4 million new homes—the most ambitious housing plan in Canadian history—to help more Canadians become homeowners. The government will bring forward regulatory amendments to implement these proposals, with further details to be announced in the coming weeks.

As the federal government works to make mortgages more affordable so more Canadians can become homeowners, it is also taking bold action to protect the rights of home buyers and renters. Today, as announced in Budget 2024, the government released the blueprints for a Renters’ Bill of Rights and a Home Buyers’ Bill of Rights. These new blueprints will protect renters from unfair practices, make leases simpler, and increase price transparency; and help make the process of buying a home, fairer, more open, and more transparent. The government is working with provinces and territories to implement these blueprints by leveraging the $5 billion in funding available to provinces and territories through the new Canada Housing Infrastructure Fund. As part of these negotiations, the federal government is calling on provinces and territories to implement measures such as protecting Canadians from renovictions and blind bidding, standardizing lease agreements, making sales price history available on title searches, and much more—to make the housing market fairer across the country.

Quotes

“We have taken bold action to help more Canadians afford a downpayment, including with the Tax-Free First Home Savings Account, through which more than 750,000 Canadians have already started saving. Building on our action to help you afford a downpayment, we are now making the boldest mortgages reforms in decades to unlock homeownership for younger Canadians. We are increasing the insured mortgage cap to reflect home prices in more expensive cities, allowing homebuyers more time to pay off their mortgage, and helping homeowners switch lenders to find the lowest interest rate at renewal.”

– The Honourable Chrystia Freeland, Deputy Prime Minister and Minister of Finance

“Everyone deserves a safe and affordable place to call home, and these mortgage measures will go a long way in helping Canadians looking to buy their first home.”

– The Honourable Sean Fraser, Minister of Housing, Infrastructure and Communities 

Quick facts

  • The strengthened Canadian Mortgage Charter, announced in Budget 2024, sets out the expectations of financial institutions to ensure Canadians in mortgage hardship have access to tailored relief and to make it easier to buy a first home.
  • Mortgage loan insurance allows Canadians to get a mortgage for up to 95 per cent of the purchase price of a home, and helps ensure they get a reasonable interest rate, even with a smaller down payment.
  • The federal government’s housing plan—the most ambitious in Canadian history—will unlock nearly 4 million more homes to make housing more affordable for Canadians. To help more Canadians afford a downpayment, in recognition of the fact the size of a downpayment and the amount of time needed to save up for a downpayment are too large today, the federal government has:
    • Launched the Tax-Free First Home Savings Account, which allows Canadians to contribute up to $8,000 per year, and up to a lifetime limit of $40,000, towards their first downpayment. Tax-free in; tax-free out; and,
    • Enhanced the Home Buyers’ Plan limit from $35,000 to $60,000, in Budget 2024, to enable first-time homebuyers to use the tax benefits of Registered Retirement Savings Plan (RRSP) contributions to save up to $25,000 more for their downpayment. The Home Buyers’ Plan enables Canadians to withdraw from their RRSP to buy or build a home and can be combined with savings through the Tax-Free First Home Savings Account.

Things are looking UP, because rates are coming DOWN!

General Darla Nicholson 6 Sep

The Bank of Canada cut the overnight policy rate by another 25 basis points to 4.25%. This is the third consecutive decrease since June. The Bank’s decision reflects two main developments. First, headline and core inflation have continued to ease as expected. Second, as inflation gets closer to the target, the central bank wants to see economic growth pick up to absorb the slack in the economy so inflation returns sustainably to the 2% target.Overall, the economy’s weakness continues to pull inflation down. However, price pressures in shelter and some other services are holding inflation up. Since the July Monetary Policy Report, the upward forces from prices for shelter and some other services have eased slightly. At the same time, the downward pressure from excess supply in the economy remains.

Tiff Macklem said,”If inflation continues to ease broadly in line with the central bank’s July forecast, it is reasonable to expect further cuts in the policy rate. We will continue to assess the opposing forces on inflation and take our monetary policy decisions one at a time.

Bottom Line

While the target overnight rate is now 4.25%, core inflation is only roughly 2.4%. Real interest rates remain too high for the economy to reach its potential growth pace of about 2.5%. Weaker growth implies a continued rise in unemployment and excess supply in other sectors.

In separate news, the US released data showing that US job openings fell to their lowest level since January 2021, consistent with other signs of slowing demand for workers.

US job growth has been slowing, unemployment is rising, and job seekers are having greater difficulty finding work, fueling fears about a potential recession.

Federal Reserve policymakers have made it clear they don’t want to see further cooling in the labour market and are widely expected to start lowering interest rates at their next meeting in two weeks.

In other news, consistent with a global economic slowdown, oil prices have plunged to new 2024 lows. Weak oil prices are a harbinger of lower inflation, growth and mortgage rates.

Bonds rallied in the wake of the disappointing US data, taking the 5-year government of Canada bond yield down to a mere 2.89%, well below the 3.4% level posted when the Bank of Canada began cutting interest rates in June. This decline in market-driven interest rates reduces fixed-rate mortgage yields. Moreover, today’s cut in the overnight rate will be followed soon by a 25 basis point reduction in the prime rate to 6.45%, reducing floating rate mortgage yields as well.

The Bank of Canada has two more decision dates this year: October 23 and December 11. At those meetings, the Bank is widely expected to continue its quarter-point rate cuts, taking the overnight rate down to 4.0% at year-end and 2.75% next year.

Credit: Dr. Sherry Cooper, Chief Economist, Dominion Lending Centres

Mortgage Concierge Service

General Darla Nicholson 9 Jul

Success is where preparation and opportunity meet. Welcome to our Professional Services Concierge Program.……reduced fee, customer-focused services merging proactive planning and reliable professional advice for greater client success.

Sign up for free and receive personalized services saving you time and money with your mortgage.  It’s easy – provide me your mortgage statement, and I will diarize to contact you a few months in advance of your renewal to get you organized.  We will review your financial plan, check your credit score, pull together the required documents, research lender programs and rates and put together a short list of lenders to appeal to.  Our lender relationships and brokerage volume discounts will benefit you tremendously in securing the absolute best option at the best rate for your circumstance.  As a client of mine, you will have access to the below preferential services at reduced costs.  Myself and my colleague, Kirti Naslund are experienced business professionals but also business owners, real estate investors and good, honest, kind family oriented people who will ensure to make your experience as efficient and pleasant as can be.

We offer an efficient, seamless experience from start to end, and follow you beyond your mortgage funding to be there for you at every life change to come.  It’s our job to be there to help and support you, whenever you need us.  We look forward to meeting you!

To Port or Not to Port??

General Darla Nicholson 2 May

Deciding whether to port your mortgage or get a new one depends on various factors such as your current mortgage terms, the terms of the new mortgage, your financial situation, your timeframe and your long-term plans. Here are some considerations to help you make your decision:

PORTING YOUR MORTGAGE

Interest rate: If your current mortgage has a lower interest rate than what is currently available, porting it might be beneficial, as you can keep the favorable rate.

Penalties: Check if there are any penalties or fees associated with porting your mortgage. Sometimes, the penalties can negate the benefits of porting.

Terms and conditions: Review the terms and conditions of your current mortgage to ensure they still align with your needs and financial situation.

Time frame:  Be clear about what information you need from your current lender to feel confident that you will be able to remove your subject to finance and feel secure.  Sometimes banks have administrative delays that prevent home-owners from getting adequate documentation within their timeframe.

GETTING A NEW MORTGAGE

Current market rates: If interest rates have decreased since you took out your current mortgage, getting a new mortgage might allow you to secure a lower rate, potentially saving you money over the long term.

Flexibility: A new mortgage may offer more flexible terms or features that better suit your current financial situation or future plans.  A mortgage broker can provide you OPTIONS to consider, ensuring you get the documentation you need when you need it.

Closing costs: Consider any closing costs associated with obtaining a new mortgage, as they can impact the overall cost-effectiveness of switching.  Using a mortgage broker allows you to lean on them to account for all costs involved and weigh the pros and cons of all options.

Financial situation: Consider your current financial situation, including your income, expenses, and overall financial goals. Choose the option that aligns best with your financial objectives and ability to manage mortgage payments.  It’s much more important that the payments be feasible for your circumstance than focusing on the interest rate.  Remember, your interest rate is temporary!

Long-term plans: Evaluate your long-term plans, such as how long you intend to stay in your current home and whether you anticipate any major life changes (such as job relocation or growing family needs) that could impact your housing situation.

Timeframe:  It is absolutely crucial to know your deadline dates.  Ensure your mortgage broker gets all those dates as soon as possible so they can put your file together, talk to lenders and present all options so you have some time to consider them and make an educated decision.  Also make sure you have accounted for your deposit funds and will be able to access them when needed, and that you’ve factored all closing costs into the transaction.

Porting your mortgage should be easy – but that’s not always the case!  In the last three months, I have had two clients come to me asking for help because they wanted to port their mortgages but weren’t feeling confident about the transaction and the support they were getting from their banks….  One client had just renewed his mortgage just under a year ago and specifically went with the lender he did because he was able to get a line of credit for a future deposit and he was assured he could port his mortgage when he was ready to upsize his home for his growing family.  Given the timeframes involved, both clients decided to switch to a new lender, even if the rate was slightly higher, because they could sleep at night knowing with certainty what the terms of the mortgage would be and that the financing would be in place when they needed it.

Ultimately, whether to port or switch lenders is a personal decision for you – – but it’s wise to ask for help from professionals so you KNOW with certainty that you are considering all feasible options for your circumstance and that you will absolutely have what you need when you need it.

March’s Weak Jobs Report Sets the Stage For a June Rate Cut

General Darla Nicholson 5 Apr

Today’s StatsCanada Labour Force Survey for March is much weaker than expected. Employment fell by 2,200, and the employment rate declined for the sixth consecutive month to 61.4%.  Total hours worked in March were virtually unchanged but up 0.7% compared with 12 months earlier.

The details were similar to the headline: as full-time jobs dipped, total hours worked fell 0.3%, and only two provinces managed job growth. Among the type of worker, a 29k drop in self-employment was the primary source of weakness, while private sector jobs managed a decent 15k gain. The issue for the Bank of Canada is that wage gains are not softening even with a rising jobless rate. Average hourly wages actually nudged up to a 5.1% y/y pace, now more than two percentage points above headline inflation. With productivity barely moving, these 5% gains will feed into costs and threaten to keep inflation sticky.

The unemployment rate in Canada jumped to 6.1% in March of 2024 from 5.8% in the earlier month, the highest since October of 2021, and sharply above market expectations of 5.9%. The result aligned with the Bank of Canada’s rhetoric that higher interest rates have a more significant impact on the Canadian labour market, strengthening the argument for doves in the BoC’s Governing Council that a rate cut may be due by the second quarter. The unemployed population jumped by 60,000 to 1.260 million, with 65% searching for jobs for over one month. Unemployment rose to an over-seven-year high for the youth (12.6% vs 11.6% in February) and grew at a softer pace for the core-aged population (5.2% vs 5%).In March, fewer people were employed in accommodation and food services (-27,000; -2.4%), wholesale and retail trade (-23,000; -0.8%), and professional, scientific, and technical services (-20,000; -1.0%). Employment increased in four industries, led by health care and social assistance (+40,000; +1.5%).

Average hourly wages among employees rose 5.1% (+$1.69 to $34.81) year over year in March, following growth of 5.0% in February (not seasonally adjusted). This is still too high for the Bank of Canada’s comfort.

Bottom Line

The central bank meets again next Wednesday, and a rate cut is unlikely. I still expect rate cuts to begin at the following meeting in June. The Canadian economy, though resilient, will suffer from rising mortgage costs as many mortgages come under renewal over the next two years. Delinquency rates have already risen. Moreover, the planned reduction in temporary residents will also slow economic activity.

With the US jobs market still booming, it is likely the BoC will begin cutting rates before the Fed.

The source of this article is from SherryCooper.com/category/articles/

The Reverse Mortgage

General Darla Nicholson 24 Feb

What do you think about reverse mortgages, now more commonly referred to as Home Equity Conversion Mortgages (HECMs)?  Do you believe you understand how they work?  I’m willing to bet if you read this article you will find you very much misunderstood this product.

Reverse mortgages are the single fastest growing home finance product on the market right now.  Reverse mortgages have a $2b share in the home finance market and we anticipate strong growth to $10m quickly over the next few years as a result of our challenging financial environment.  Why?

  • The need for a product that allows aging folks to access their hard-earned cash from the equity in their homes without having to qualify based on income.
  • British Columbia, particularly areas like Vancouver and the surrounding regions, has experienced significant increases in home prices over the years. This has contributed to the attractiveness of reverse mortgages for homeowners looking to tap into their home equity.
  • Government Regulations: The reverse mortgage market in Canada is regulated by the federal government, with specific guidelines in place to protect consumers. Borrowers are required to undergo mandatory counseling to ensure they understand the terms and implications of a reverse mortgage.
  • Consumer Awareness: Efforts to educate consumers about reverse mortgages have increased, including information about the risks and benefits associated with these products. Many financial institutions and mortgage lenders offer reverse mortgages in British Columbia, contributing to consumer awareness and accessibility.

Here’s some food for thought based on the FACTS….  (using HomeEquity Bank and it’s products for the purposes of this article)

A reverse mortgage is just a first charge on your property.  You still own your home and have title to the home.  However, it is different from all other types of loans in a couple ways.

  • Any other type of loan requires that you qualify for the loan based on income and credit.
  • All other loans require that you make a monthly payment until the debt is paid off.

Because of the stress test, qualifying for financing is difficult for many, and making a payment is counterintuitive if improving cash flow is the goal.

So, instead of having to qualify for a loan based on income and credit, it’s mainly age and equity that determines the approval for a reverse mortgage.  The older the client, the higher the approved limit you receive…the younger the client, the lower the limit.  Essentially, you are given a credit limit on the home, the money can be used for whatever you like, but you never have to make a single payment against it for as long as one applicant lives in the home.  Instead of a regular loan where you make a payment every month, with a reverse mortgage the interest that they charge is simply added to your balance and grows over time.  Whenever you eventually sell the home, that is when they are paid back the money you borrowed plus the interest that accrued over the years; the rest of the equity is all yours.

History has shown that while the balance owing increases over time because of the accruing interest, the home tends to appreciate over time as well.  Typically, clients find that they have just as much equity left in the home when they sell as when they started, because the appreciation on the home made up for the accruing interest.  To provide clients further confidence, HomeEquity Bank has a “fair market value guarantee”….this means that if you ever sell the home at fair market value, and you owe more than it sells for, HomeEquity Bank takes the loss; not you.  Here is an example of what a reverse mortgage could look like on a $3m home for a 68 year old applicant that intends to stay in his home for 10 years (of course you can get out of the reverse mortgage prior to the 10 years if you wanted to – see below about possible applicable penalties).

Comparing Home Equity to RRSP’s

When you really think about it, your house is an investment you made; not too different from RRSP’s.  You paid a mortgage payment every month for 25 years into an investment, and now it represents $1m of your life savings.  Had you put money into an RRSP for 25 years and you had $1m in that account, you would likely be drawing down on that investment to help fund your retirement.  In the end, there would be less money in the RRSP because you chose to use some of the money along the way.  There is a cost to spending RRSP’s, though….first, when you take money from an RRSP, you are no longer earning interest on that money, so it’s costing you 5%-6% in lost returns when you take it out.  Plus, the money is taxable income.  When you take money out of the savings account in your home, they will charge you interest, but that’s no different than the interest you lose when taking from investments.  The money from your home is tax free, and the value of the asset doesn’t deplete just because you used some of the money. As well, proceeds from a reverse mortgage are typically not considered taxable income and do not affect eligibility for government benefits such as Old Age Security (OAS) or Guaranteed Income Supplement (GIS).

Penalties

A common misunderstanding is that if clients take a short term, they can pay it out at the end of the term with no penalty.  A reverse mortgage becomes that way after 5 years, but in the first 5 years, regardless of the term chosen, the prepayment penalties to pay it off are as follows:

0-12 months – penalty is 5% of the balance owing
13-24 months – penalty is 4% of the balance owing
25-36 months – penalty is 3% of the balance owing
After 3 years – penalty is 3 months interest
Penalty always waived upon death of the last applicant
Penalty reduced by 50% if moving into a care facility
At the 5 year mark, now clients can start paying off at the end of each term with no penalty; otherwise it just stays at 3 months interest

There are a number of products available within HomeEquity Bank for you to choose from.  I am attaching a comparison sheet for you to look over.  There is a fully open product where the above penalties DON’T apply.  That product costs a little more to set up (upfront fee is the greater of $2995 or 1.25% of the loan amount), and the rate is Prime+3.54%, but that is less expensive than paying the penalties to get out of the regular CHIP in the first couple years.

Who is a reverse mortgage useful for?  Here’s a profile of the ideal Canadian reverse mortgage client:

  • Age 55 or older: In Canada, individuals as young as 55 can qualify for a reverse mortgage. However, the older the borrower, the higher the percentage of home equity they can access.
  • Homeowner: The client must own their primary residence, which should be their principal residence throughout the term of the reverse mortgage.
  • Sufficient Home Equity: The ideal client has significant equity built up in their home, typically with minimal to no existing mortgage debt. The amount of equity will determine the maximum loan amount available through the reverse mortgage.
  • Limited Income and Financial Flexibility: Canadian reverse mortgages are often sought by retirees or seniors with limited/fixed income who want to access the equity in their homes to supplement their retirement income, cover unexpected expenses (or live out their wildest dreams with their hard earned money!!!).
  • Wants to maintain homeownership: Clients who wish to remain in their homes and maintain ownership while accessing their home equity are ideal candidates. They should have a strong desire to age in place.
  • Understands the risks and benefits: The ideal client is well-informed about the terms, conditions, and implications of a reverse mortgage. They have received counseling from an accredited third-party counselor, as required by Canadian regulations.
  • Needs flexibility in payment options: Canadian reverse mortgages offer flexibility in how funds are accessed, including lump-sum payments, periodic payments, or a combination of both. The ideal client chooses a payment plan that best suits their financial needs.
  • No plans to move in the near future: Reverse mortgages are designed for individuals who plan to stay in their homes for at least 5 years or longer.
  • Considers the impact on heirs: While the client may not have immediate plans to leave the home to heirs, they have considered and discussed with their family the potential impact of a reverse mortgage on inheritance and estate planning.
  • Comfortable with interest accrual: Clients understand that interest accrues on the reverse mortgage balance over time, which can lead to a reduction in home equity over the loan term.

You can see now how a reverse mortgage unquestionably has a place in our market!  There is no other way for retired homeowners to access the large amounts of equity in their homes to live out their retirements however they want. After working for 40+ years, we all deserve to live our best lives, don’t you agree?

 

 

 

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