Bank of Canada Update: June 10th

Dan Ahlstrand and Clinton Wilkins discuss how The Bank of Canada has kept its key overnight rate steady, which has no immediate impact on variable rate mortgages.

Dan Ahlstrand
You heard our next guest this past weekend here on the radio station, and if you missed Mortgage 101, don’t forget you can go back into our catalogue, and you can pick that one up, or you can pick up past episodes of Mortgage 101. There’s some really great information in there, folks, particularly in that they’re all good, but this month is particularly interesting, at least to me, because we really dug into the real estate market here in Nova Scotia. Particularly here in the urban areas, Dartmouth, the hottest real estate market in Nova Scotia. I didn’t realize that until we did that show, so that’s something that we learned, but of course, when it comes to mortgages and it comes to buying property, what happens with the Bank of Canada is always a big deal. And we heard today that the Bank of Canada is going to hold things steady for the next little bit here. And what does that mean for your mortgage? I know somebody that can answer that. Clinton, can you answer that?

Clinton Wilkins
I’m pretty good at answering it most of the time, and obviously the bank can have held the key overnight rate, which I think is, is what we predicted. We talked about this on my show, Mortgage 101. I say my show, but it’s our show, a couple months ago, and it, this is what happened. I would predict that we’re going to continue to see a hold, specifically until things are going to kind of right themselves with the oil situation, war, etc.

Dan Ahlstrand
Well, that was right in the decision from the Bank of Canada that I read to the folks on the air earlier, was that instability in the Middle East, and this this ongoing conflict that’s on again, off again, on again, off again in the middle east is creating some, some concern in the market, and they’re just kind of hanging back to see what’s going to happen.

Clinton Wilkins
Yeah, definitely. I think there’s a lot of like wait and see. We’re looking at the other key indicators. We’re looking at the job numbers; those were, I think, a little bit better than expected, better than it was maybe the previous time they announced it. We’re watching GDP, obviously we’re watching inflation, all of these things they take into consideration, and these decisions that the Bank of Canada make, like they did it in a lockup this morning, they really don’t make a decision until really this day, they’re bringing all this information together, and as much as we can make predictions and estimates, and, look at where the trends are going, things really do change so quickly, and it can impact those decisions. One thing I mentioned before I did a live stream on Facebook is I think the economists are getting better at making these predictions leading up to a Bank of Canada announcement, but they don’t have a crystal ball, and they don’t necessarily have all the information that the Bank of Canada does have, so I think it’s very interesting for me. I was on a call yesterday with Manulife Bank, the home of the Manulife One, and they had one of their economists on, and they said, we may see maybe three rate cuts from the Bank of Canada between now and the end of next year, but again, that is today. Who knows, who knows what one month is going to bring. The Bank of Canada’s meeting is again July 15, and who knows what will happen between now and then. I’m like, this is almost a reality TV show between us, and what’s going on south of the border. Expect the unexpected.

Dan Ahlstrand
What does this mean today, Clinton? Before we look at the next one, but what does this mean for people that are, that are in a mortgage product, a variable rate mortgage? Nothing really changes, right?

Clinton Wilkins
No, things are going to stay the same. So, if you have a variable rate mortgage, your payments are staying the same, or your amortization is staying the same, and a lot of people are asking me, Dan, what is the best product today? We are in a plateau situation: variable is way more popular than it was six months ago, or a year ago, so we’re seeing a huge uptick in consumers taking a variable rate. One thing this economist said from Manulife Bank yesterday, working out the numbers, the variable rate and the fixed rate, even though there is quite a spread, variable is much lower today. They said it might actually work out to be the same cost over a five-year period of time. So they look at what, what average five-year fixed is,-I don’t know, like four and a half percent,-and where a variable is at four or maybe 3.6, just depending on, like, what lender you’re with. They said that that might work out to be about the same cost, depending on what happens with the rates. Obviously, there are other upsides about the product, and that’s why I think it’s so specific to consumers right now; obviously, variables are lower, so you can qualify for more. In theory, a lower rate means lower qualification and means lower payment today, so obviously that is huge. Yes, the cost of borrowing is lower today, but I think the big upside is you can always convert into a fix and there’s no penalty, and if you were needing to break your variable rate mortgage early, and let me tell you, Dan, a lot of consumers do not make it their full term, the penalty is the lowest to get out of a variable rate mortgage at three months interest, so if you need to sell or refinance or renew early for some reason in a variable, the penalty would be only three months interest, where on a fixed rate you could pay a much larger penalty if you can, you exit your term early.

Dan Ahlstrand
Exactly, or in this market, what’s the what’s the difference in interest rates between a variable rate mortgage and a fixed rate mortgage?

Clinton Wilkins
Today, I think it could be anywhere up to about 100 basis points, so we are seeing some variables kind of on the low end of the scale, like 3.6, 3.7 in that range, fixed rates are anywhere from the low fours, like four, four and a quarter, four and a half up to maybe mid to high fours, just depending on what lender you’re with, what product, and what length of term you’re taking. So we’re talking maybe up to 100 basis points difference between a variable and a fixed. For me, a lot of our customers are taking a variable, because we’re educating them. I mean, we’re here on the radio; I’m doing live streams; we’re sending emails and SMS every time the Bank of Canada meets, and historically variable is lower, but you need to be able to weather the storm. You need to not be worried all the time about what is going on, and yes, there’s going to be highs and there’s going to be lows, but I thought it gave me a lot of solace yesterday that the economists are saying, hey, the variable in the fix, it’s probably going to work out to be about the same cost, and I think for a lot of consumers they’re like, okay, if it’s going to cost me the same, I’d rather maybe be less today, because e need the money and the dollars and the cents in our pocket today, and then we could maybe mitigate some of these risks going forward, and, I think the big thing with the variable is you need to have someone that’s going to watch it for you if ou’re not watching it, and I think that’s where consumers can really benefit from that advice from an unbiased mortgage professional. It’s having someone manage and watch their situation and giving them that, that advice as things change.

Dan Ahlstrand
Clinton, with the prediction, and again, I will put a big grain of salt with predictions, right? Things change almost hourly now, but if they’re, if they’re leaning towards some rate reductions by the end of next year. I know you’ll always say that the best time to get into a new mortgage is yesterday, but that being said, would it behoove someone to maybe roll back a little bit and see where it’s going and maybe get a better rate? But if you’re in a variable rate mortgage, it really won’t matter.

Clinton Wilkins
It may almost be the opposite, Dan, and I’ll tell you why. Right now, we’re seeing an uptick in the bond market, where the cost of funds are more, so that means at a variable rate mortgage, even though the Bank of Canada did not change the key overnight rate today, the spread may not be as good here going forward, because the cost of funds for these lenders, might be getting more expensive, so we could see fixed rates edging up a little bit, I’m not saying they’re going up, but they could, that, but, if the fixed rates go up, oftentimes the spreads for the variable get, not as good, and I think that’s one thing to take into consideration, especially if you’re going to refinance or renew your mortgage, it’s really good to get an approval, 120 days before then you’re kind of hedging the bets, and if the rates go down, we’re all about giving the customer a lower interest rate, if that is possible. So I think that’s one thing that people should do, but I’m seeing kind of the opposite happening right now. People are really waiting to the last possible minute to do a transaction, and sometimes it is working against them, where, if I would have talked to them two or three months ago, we could have potentially given them a better deal, and there’s a lot of, I would say, even volatility in the market between lenders. Lenders are offering different pricing, the products are different, and I think it’s more complex today than it has been before. So, that’s why I think everyone really needs to look at their situation and decide what’s going to work best for them for the next term, or their, their life. Five years is a long time these days. I think before, five years, not that we didn’t see a lot of change, but things are changing very rapidly right now, and you need to make sure that you’re going to be into it for the commitment.

Dan Ahlstrand
And we talked about this on the show on the weekend, Clinton. It’s important to have that just that discussion before you get involved, heavily involved, maybe going to look for a new home, because you don’t want to, don’t want to fall in love with something that you’re not able to get a mortgage to support.

Clinton Wilkins
I think that’s definitely, definitely something. Well, they’re not digging really into your income or your assets and your credit, and, I think sometimes people’s perception of what the reality is is sometimes different, and we see the fallout, like people call us kind of to get a second look or maybe a second opinion, and it’s always better, if we’re starting up front, because then we can really set that expectation, for us, we want everyone to be approved. I want to be that happiness coordinator. I always like to joke and say that it’s important for us that we are trying to set the expectation, and for me, I’d always want to underpromise and overdeliver, but that’s not always the situation with every vendor, lender, business partner out there. So, I think it’s important for you to decide who you’re going to do business with and be loyal to that that that individual or that or that firm. Obviously, this is a small business. We are employing people in Nova Scotia and New Brunswick. We want to make sure our business is going to be sustainable. And luckily, I’ve been around for about 20 years, and we have a lot of clients, but it is tough, and it’s a hustle every single day. And I think it really comes down to who you’re going to be in a relationship with, and you need to just make sure that you’re going to get that good advice, and that you’re going to be in a relationship with them. In some cases, for 25 years.

Dan Ahlstrand
If someone wants to reach out, Clinton or wants more information, the best way to do so?

Clinton Wilkins
Online is the best, Dan. They can check us out on our website at Teamclinton.ca/radio. We have hundreds and hundreds of blog posts, links to our social media. You can see what Dan and I look like, and you can watch us on TikTok or Instagram. We basically turn our show, Mortgage 101, into a podcast, and it’s on Spotify and Apple Music, and it’s here on the 95.7 website as well.

Dan Ahlstrand
Clinton, always a pleasure, my friend.

Clinton Wilkins
Thanks for having me.

Dan Ahlstrand
Clinton Wilkins, our mortgage guru. We’re going to take a break and get an update on the news.