6 Sep

Bank of Canada Holds The Overnight Policy Rate Steady at 5%

Latest News

Posted by: Muneet Bhatia

Bank of Canada Holds The Overnight Policy Rate Steady at 5%.

Bank of Canada Holds Rates Steady Acknowledging Economic Slowdown

With last Friday’s publication of the anemic second-quarter GDP data, it was obvious that the Bank of Canada would refrain from raising rates at today’s meeting. Economic activity declined by 0.2% in Q2; the first quarter growth estimate decreased from 3.1% to 2.6%.

Today’s press release announced, “The Canadian economy has entered a period of weaker growth, which is needed to relieve price pressures.” The Q2 slowdown in output reflected a “marked weakening in consumption growth and a decline in housing activity, as well as the impact of wildfires in many regions of the country. Household credit growth slowed as the impact of higher rates restrained spending among a wider range of borrowers. Final domestic demand grew by 1% in the second quarter, supported by government spending and a boost to business investment. The tightness in the labour market has continued to ease gradually. However, wage growth has remained around 4% to 5%.”

Lest we get too comfy with a more dovish stance in monetary policy, the central bank warned that the Governing Council remains resolute in its commitment to restoring price stability.

Inflationary pressures remain broad-based. CPI inflation rose to 3.3% in July after falling to 2.8% in June. Much of the rise in July was caused by the statistical base effect. Nevertheless, current harbingers of inflation remain troubling. The increase in gasoline prices in August will boost inflation soon before easing again. “Year-over-year and three-month measures of core inflation are now running at about 3.5%, indicating little recent downward momentum in underlying inflation. The longer high inflation persists, the greater the risk that elevated inflation becomes entrenched, making it more difficult to restore price stability.”

The Bank also continues to normalize its balance sheet by letting maturing bonds run off. This quantitative tightening keeps upward pressure on longer-term interest rates.

Tiff Macklem and company concede that excess demand is diminishing and the labour markets are easing. The unemployment rate rose to 5.5% in July, up from a cycle low of 4.9%, and job vacancies continue to decline. Net exports have slowed, and the Chinese economy has weakened sharply. Consumers are tightening their belts as the saving rate rose and household spending slowed markedly in Q1.

Monetary policy actions have a lagged effect on the economy. As mortgage renewals rise, peaking in 2026, the economic impact of higher interest rates will grow. Homeowners renewing mortgages this year are seeing roughly a doubling in interest rates.

The Governing Council will focus on the movement in excess demand, inflation expectations, wage growth and corporate price decisions.

Bottom Line

The Bank of Canada, though independent, is coming under increasing political pressure. In an unusual move, the premiers of both BC and Ontario have publicly called for a cessation of rate hikes. Even so, the BoC is keeping its hawkish bias to avoid a bond rally that could trigger another boost in the housing market, similar to what we saw last April. The government bond yield is hovering just under 4%, having breached that level recently with the release of robust US economic data.

There are two more meetings before the end of this year, and many are expecting another rate hike in one of those meetings. The odds of this are less than even, given the downward momentum in the economy.

The central bank’s next decision is due October 25, after two releases of jobs, inflation and retail data, gross domestic product numbers for July and an August estimate.

 

Written by Chief Economist Dr. Sherry Cooper

6 Sep

Mortgage Portability

Mortgage Tips

Posted by: Muneet Bhatia

Mortgage Portability.

When it comes to getting a mortgage, one of the more overlooked elements is the option to be able to port the loan down the line.

Porting your mortgage is an option within your mortgage agreement, which enables you to move to another property without having to lose your existing interest rate, mortgage balance and term. Thereby allowing you to move or ‘port’ your mortgage over to the new home. Plus, the ability to port also saves you money by avoiding early discharge penalties should you move partway through your term.

Typically, portability options are offered on fixed-rate mortgages. Lenders often use a “blended” system where your current mortgage rate stays the same on the mortgage amount ported over to the new property and the new balance is calculated using the current interest rate. When it comes to variable-rate mortgages, you may not have the same option. However, when breaking a variable-rate mortgage, you would only be faced with a three-month interest penalty charge. While this can range up to $4,000, it is much lower than the average penalty to break a fixed mortgage. In addition, there are cases where you can be reimbursed the fee with your new mortgage.

If you already have the existing option to port your mortgage, or are considering it for your next mortgage cycle, there are a few considerations to keep in mind:

  1. Timeframe: Some portability options require the sale and purchase to occur on the same day. Other lenders offer a week to do this, some a month, and others up to three months.
  2. Terms: Keep in mind, some lenders don’t allow a changed term or might force you into a longer term as part of agreeing to port you mortgage.
  3. Penalty Reimbursements: Some lenders may reimburse your entire penalty, whether you are a fixed or variable borrower, if you simply get a new mortgage with the same lender – replacing the one being discharged. Additionally, some lenders will even allow you to move into a brand-new term of your choice and start fresh. Keep in mind, there can be cases where it’s better to pay a penalty at the time of selling and get into a new term at a brand-new rate that could save back your penalty over the course of the new term.

To get all the details about mortgage portability and find out if you have this option (or the potential penalties if you don’t), contact a Dominion Lending Centres mortgage expert today for expert advice and a helping hand throughout your mortgage journey!

 

Written by DLC Marketing Team

6 Sep

How do you Measure Your Financial Growth?

Financial Health

Posted by: Muneet Bhatia

How do you Measure Your Financial Growth?

If you are reading this you probably have a keen interest in improving your financial situation — but how are you going to measure your progress?

The easiest way is by setting and achieving a goal. This could be short-term and focused, like wiping out a credit card debt. On the other hand, it could be a long-term goal like burning the mortgage five years ahead of time after twenty years of scrimping and saving.

Achieving either of these goals is a great accomplishment, but they may not tell the whole story. The problem with both of them is they are independent from all of the other factors that affect your financial standing. What if the value of the house you just paid off has dropped 20% over the last year, or you eliminated one credit card balance only to see another card or line of credit head in the opposite direction?

No single metric tells the whole story of your financial progress. Paying yourself first and diligently putting $300 from every paycheque into your RRSP will definitely help you hit your retirement goals. However, you also need to monitor the growth from investing your RRSP as well as any other assets that are contributing to your retirement fund and ensure the total value is steadily tracking towards your goal.

Cash flow is another common measure of financial progress. Tracking your income and expenses helps you understand how much money you have available after covering your costs. Positive cash flow is a surplus that can be used for saving, investing, or paying down debt — but it doesn’t measure how effective you were at putting that cash surplus to work. You may think you are making progress, but if you let the cash sit in a bank savings account instead of a GIC in your TFSA, then you actually made comparatively poor progress.

If you want to keep it simple and look at only one metric to get a holistic view of your financial health, measuring your net worth can provide you with valuable insights. It’s an easy-to-understand concept that will help you analyze your financial health and overall progress towards your financial goals.

Calculating your net worth isn’t all that difficult and although it represents only a snapshot in time, the main advantage is that it provides a comprehensive snapshot. It takes into account all of your assets (such as cash, investments, real estate, and valuable possessions) and subtracts your liabilities (such as debts and loans). Monitoring your net worth forces you to be aware of all your financial accounts and can help you make more informed decisions about your spending, saving, and investing habits.

As you work to increase your assets and reduce your liabilities, your net worth should show positive growth. This signifies that you’re making smart financial decisions and accumulating wealth over time. Seeing your net worth increase can be motivating and reinforce positive financial behaviors. On the flip side, if you notice a decline, it can signal that you need to reevaluate your financial decisions and make necessary adjustments.

Monitoring your net worth helps you understand how effectively you’re building wealth. Although the market value of assets such as stocks or real estate fluctuate, comparing your net worth to previous periods can still help you evaluate the effectiveness of different financial strategies you’ve implemented. This allows you to refine your approach and make changes as needed.

Your net worth is an essential factor in assessing your retirement readiness. It helps you determine if you’re on track to maintain your desired lifestyle during retirement and whether you need to adjust your savings and investment strategies. It can also influence your estate planning decisions. It’s important for determining how you want your assets distributed after your passing and for considering strategies to minimize potential estate taxes.

There are lots of ways to measure financial growth and no one method is perfect, but keeping an eye on your net worth is a relatively easy task that will do wonders for your motivation — why not give it a try?

 

Written by DLC Marketing Team.