Bank of Canada – Don’t wait until your finances are tight | October 26, 2022

Clinton chats with CityNews host, Sam Laprade in Ottawa about the Bank of Canada announcement. The Bank of Canada increased the key overnight rate by 50 basis points. Clinton and Sam talk about how borrowers need to be proactive and talk to an unbiased mortgage professional if they are worried about their finances becoming too tight. The two also talk about what this increase means for borrowers and what you should do if your mortgage is coming up for renewal.

Bank of Canada – Don’t wait until your finances are tight | October 26, 2022

Don’t feel like watching the video? Check out the transcript below.

Transcript:

Bank of Canada raises interest rates by 50 basis points

Sam Laprade: [00:00:11.24] And we’re back on City News and Rogers TV. Thanks so much for spending time with us. We wanted to dive right in and have a conversation today with Clinton Wilkins from CENTUM Home Lenders Limited and of course, always with us with Mortgage 101 here on CityNews. How are you, Clinton?

Clinton Wilkins: [00:00:29.00] I’m doing well, Sam. Thanks for having me.

Sam Laprade: [00:00:30.62] Clinton We know that homeowners and anybody that has any credit card was holding their breath this morning because the Bank of Canada has hiked its key interest rate by half a percentage point. Some thought it was going to be three quarters of a percentage point. What are your thoughts this morning, Clinton.

“I think it’s pretty good news”

Clinton Wilkins: [00:00:49.37] I think it’s pretty good news, Sam, to be honest. You know, I think a lot of economists were saying that there was going to be a jumbo-sized increase just due to, you know, what’s been going on with inflation. I think some people thought there could even be a 100 basis point increase this meeting. So I think a 50 basis point increase really is a message from the Bank of Canada that they think that the 300 basis points that they’ve already increased this year is working.

You know, I think inflation obviously is a big situation. And I think that, you know, really what’s going on across the markets really have, you know, had an impact. You know, it’s having an immediate impact on what’s going on with the, you know, real estate really across this country. You know, I can speak to even what’s going on in Ottawa pre these increases, you know, late last year and early into this year, the average home price in in Ottawa was nearly $900,000. And now I think the average is now more around $750,000. So there certainly has been an impact.

In Ottawa, I can tell you, even in our market here in Halifax, we are maybe not as susceptible to the rate sensitivities, but certainly there’s not as many transactions happening right now as there were just even a few months ago.

What does this mean for people’s mortgages?

Sam Laprade: [00:02:08.99] And what will this mean, Clinton, in terms of people’s mortgages, how much are you expecting that that will increase a monthly or a biweekly payment?

Clinton Wilkins: [00:02:19.43] You know, it really depends on how much a consumer owes on their mortgage and what their amortisation is. But I certainly can tell you that if you’re in an adjustable rate mortgage, that’s the type of mortgage that if the prime rate goes up, the payment is going to change. You will have a change either right away or by the 1st of November. Different lenders kind of put things into effect immediately and some wait until the first of the following month. So there certainly are going to be some increases.

I’m also concerned about those consumers that have a type of mortgage that the payment is steady. So that’s called VRM and it’s still a variable rate mortgage, but they have a static payment. We talked a little bit about this on our show that those consumers could be hitting a trigger rate. And at a trigger point, they’re either going to have to increase their mortgage payment or do a big lump sum payment to keep that amortisation in line. So I think that’s certainly a concern. I think, know the type of product that you’re in and kind of what the impacts are.

I think the other thing, and I think we’d be remiss to mention it, Sam, but consumers that are in a fixed rate, I see them. I have some on social media, I see people out and about. I think some consumers that are in a fixed rate are living in a little bit of a false reality of what’s going on right now. They think maybe the term is never going to end. I can tell you we have consumers that are coming up for renewal later this year and obviously into next year that are in rates, you know, three and sub 3% and they’re coming up for renewal at rates that are literally double what they had.

Sam Laprade: [00:03:50.33] Wow.

“I’m really less concerned about people in an adjustable rate mortgage”

Clinton Wilkins: [00:03:51.23] I’m really less concerned about people in an adjustable rate mortgage, Sam. You know, I feel the pain. I’m in a variable rate myself. But you know, you’re prepared. And I think the people that are in that variable rate mortgage product, we’ve already maybe cut back a little bit. We focus maybe more on our needs versus our wants. And, you know, I think we’re in a bit of a storm here and the storm is going to continue. It’s going to continue until the Bank of Canada gets the inflation in line.

Tiff Macklin was here in Halifax doing an address, his first public address since he was the governor of the Bank of Canada just a couple of weeks ago. And he said here at the Chamber of Commerce lunch that they will do whatever it takes to bring inflation in line. You know, I think a consumer that is in a variable rate mortgage, we need to take that into account. But I think a lot of economists think that we’re almost at the ceiling. I was in Vancouver the week before last for our national mortgage conference. That’s where mortgage brokers from all different brands come together.

And Benjamin Tall, the chief economist at CIBC, said that he thinks the ceiling is somewhere around 125 basis points more than where we were at that time. So we may see another 50 to 75 basis points increase between now and the end of next year. But many economists think that we’re going to be in a recession by the end of next year. And I think there are signs that we’re kind of starting a recession type situation now.

Next announcement in December: will the rates go up again?

Sam Laprade: [00:05:14.49] Wow. And we know that the next hike, I believe, is in December, correct? If there’s going the next one.

Clinton Wilkins: [00:05:21.06] Yeah. The next announcement will be in December. The Bank of Canada meets eight times a year just so we can kind of give a little bit of mechanics to our listeners. The next meeting is December 7th. Again, we’re not sure what’s going to happen. It’s going to be a little bit of a wait and see. Obviously, there has been now 350 basis points of increases throughout this year, so there might not be an increase in December.

You know, that might be wishful thinking. There may be 25, there may be 50, there may be 75 basis points increase in December. It’s really hard to know. I think once they start seeing the inflation returns and see what impact the increasing of the rates has had on inflation, I think we’ll have a better idea kind of going into December. And we’ll certainly be talking a lot in November about what’s going on in, you know, the Bank of Canada. November is financial literacy month and we’re going to be actually having a few of our shows on CityNews, Ottawa.

So we’re certainly going to be talking about income assets and credit and really what impact does the rate have on these types of things. So there’s going to be a lot of content and we’ll certainly be here with you, Sam, to talk about those things as well.

Trying to make mortgages easy for clients

Sam Laprade: [00:06:25.68] And Clinton, what I love about our conversations and about Mortgage 101, which of course is here on CityNews, is you just lay it out in in terms that everyone can kind of grasp, right? I mean, I think sometimes for people that aren’t in this on a day to day basis, it can feel very mysterious to us, right.

So you just seem to take the mystery out of it and just give it to us straight, which is really important. And we know, of course, as we were talking about, the Bank of Canada is forecasting inflation will slow to 3% by the end of 2023 before getting back to its 2% target in 2024. This is the long game, Clinton, isn’t it?

Clinton Wilkins: [00:07:02.70] It certainly is a long game. And I think that we’re going to have to be very patient and planful over the next year. You know, I think we really need to watch our spending, Sam. That’s on consumer goods. It’s on travel. It’s on, you know, everything that we do on a daily basis.

Many of us are on fixed income, whether that’s a salary or whether you’re on a on a pension. And, you know, 70% of consumers that have a mortgage have a mortgage, you know, in that 3% range or it was in that 3% range. So many people are certainly feeling the pinch as the increase in the rates happen. And, you know, don’t dig yourself a hole.

Don’t wait until your finances are tight

You know, really think about your finances and see where things are sitting. And, you know, I would really suggest, you know, before things get too tight. And if you’re having some financial hardship, you know, talk to an unbiased, mortgage professional. Does a mid-term refinance make sense? You know, really, nobody wants to pay a penalty,

Sam, but a penalty is a lot better than maybe putting yourself into financial hardship that you can’t then kind of dig out of. So I think, you know, certainly ask for help and ask the questions. And I think now is a really good time to be aware of what’s going on with your finances because it’s daunting.

Sam Laprade: [00:08:13.38] It is daunting, and I think it can be very challenging as well for couples, Clinton. You know, one person might be a saver in one person might be a spender.

Clinton Wilkins: [00:08:21.55] I see it.

Sam Laprade: [00:08:22.74] Exactly. I mean, that’s a perspective. But if you both go with an open mind to speak with somebody like yourself, you know, a mortgage broker that could kind of take the emotions out of it and really make sure that your family understands this is the long game and try to ensure that you know, stay in your home and that you’re able to, you know, to live the kind of life that you want.

And as you talked about, you know, the wants and the needs and all of those pieces, it’s a really important conversation. And we know that the can put a lot of pressure on families. But I think your goal Clinton from what I can understand from every time we speak, is to make this as easy as possible on people.

Review your finances with your partner

Clinton Wilkins: [00:08:58.89] I think it really it is daunting and I think that there’s a bit of a taboo talking about financial health and wellness. You know, and we’ve kind of joked about it, you know, having these wine Wednesdays or whatever it is, and opening your bills and talking about how much you owe and how much you have in the bank and all these things, I think that’s healthy.

And, you know, there’s many consumers that, you know, there are lone wolf and they own a property on their own and they don’t have anyone else to help them. So I think, you know, that’s an internal conversation that you have and maybe really look at things. But there’s a lot of households where there’s two borrowers. And I think, you know, having those conversations is really, really important. And I would say it’s even more important now than it ever has been. You know, there are consumers that have mortgage products that are coming up for renewal, and I would say take early and take very steady action.

Know your situation 120 days before your renewal

Typically, you need to look at what your situation is 120 days before your renewal happens. There’s many consumers that their renewal is going to be much higher than what it was previously. So, you know, I think making some changes could be healthy. And the other thing is, you know, in our market here in Halifax and I know certainly in Ontario, there are a lot of private mortgages that when they come up for renewal lenders don’t necessarily automatically offer you a renewal option.

So certainly have these conversations, get your ducks in a row, know what’s going on with your income, your assets and your credit. You know, prior to renewal, it’ll be a lot easier conversation. And I think the sooner you start having these conversations and the sooner you start seeking that advice in the 120 day mark, the more kind of lead time you have to make sure that you’re going to be in the best possible situation for the next term.

Sam Laprade: [00:10:38.71] Brilliant advice, as always. Whenever I hear the Bank of Canada is calling a meeting, I think, “well, that’s okay. I get to speak with Clinton Wilkins,” so it’s all good. Thank you so much, Clinton, for your time today.

If you have any questions, get in touch with us at Clinton Wilkins Mortgage Team! You can call us at (902) 482-2770 or contact us here.