Mortgage 101 – Impact of Tariffs on Mortgage Rates

Todd Veinotte and Clinton Wilkins discuss the impact of tariffs on mortgage rates, with Wilkins noting uncertainty and potential rate changes.

Todd Veinotte
Welcome back to Mortgage 101. Your guide to home ownership with myself, Todd Veinotte and Clinton Wilkins, our mortgage guru, it is this month of love, and we’re talking about loving your home and not always loving the news.

Impact of Tariffs on Mortgage Rates

Clinton Wilkins
As of late, though I do not love the news. It has been challenging. I think there are a lot of bar stool economists here after this past weekend with all the chatter about tariffs. And let me tell you, it has people up in arms, even though it’s been put on pause at least for the next 30 days, but people are amped up with the concerns. The one thing I will say is, from a mortgage perspective, it could go either way. It could increase rates or it could decrease rates. We don’t know. And the one thing that I will say is, the only thing that we know is what we’re certain of right now, and anything could happen. The chief economist, though, from the Bank of Montreal, did say that they think the rates could be 150 basis points lower before the end of the year. I don’t know if it would be that much, and I think that might be quite disruptive, and I think that would be inflationary, but we’ll wait and see. And that would be way, way beyond my prediction in terms of rate cuts. I, and a lot of economists, were calling for emergency Bank of Canada rate cuts if the tariffs went into place, similar to what we would have seen in 2020, and that’s what I told my team. We have so many borrowers that we’re talking to every single day, and people are very worried, and what I said to them, let’s prepare ourselves like this is COVID. We are uncertain. We do not know what’s going to happen. Things could be good, things could be really bad, but we need to take one day at a time, and that’s really what mortgage lending is all about. It’s a snapshot in time. We’re looking at income, we’re looking at assets, and we’re looking at credit, and we’re looking at what happens today, and the advice today could be different from the advice tomorrow. And we’ll pivot, and we’ll pump out the information, and we’ll educate, and we’ll be here with you to share any of the information that we know and we’re going to be here I’m sensitive to the situation, but let me tell you, we have a lot of people that are looking at doing early renewals, early refinance midterm just to get something set up. The other thing I’ll tell you is that variable-rate mortgages have increasingly skyrocketed in terms of popularity, because a variable-rate mortgage is, right now, pretty much on par with what you can get in a fixed-rate mortgage. So obviously, a lot more borrowers are choosing to do a variable for, very obvious reasons.

Todd Veinotte
All right, so people are concerned about job losses, and business owners are concerned about losing business. I think what are you hearing?

Clinton Wilkins
It’s the same thing from COVID, I think job losses. I think that they think that, if the tariffs come in and we start paying more for goods, they’re concerned about inflation. We just got inflation under control below 2% and, I think they’re just concerned about supply chain and a lot of other issues. I think this year is going to be expected the unexpected. That sounds like a reality TV show. I think one of them is kind of their motto, and it’s going to be expect the unexpected for the next four years. All I can say is, it’s time to buckle up. So what do you mean by I think we need to tighten our economic belts in terms of what we’re spending? Again, we’ve said we need to focus on needs, not wants. We need to focus on keeping inflation low. And right now, I think we’re in a situation where cash is king. We need to bring down our unsecured debt. This might be a refinance, or you just need to focus on paying down your debt. We don’t know what’s going to happen with the dollar. That can have big, big impacts on our cost of goods here at home. Yes, we’re buying goods from all over the world, and when the Canadian dollar is low, it costs us more. So I think focus on your needs, not your wants. Build a war chest of cash and have the debt paid down.

Focusing on Needs and Building Cash Reserves

Todd Veinotte
And I think, like the other thing to consider is that people who were planning on trips, perhaps into the United States going to Disney, and people are rethinking, I’m not going to go. Some people are considering it. So, use some of that money that you were going to spend on these trips to the US and shore up your finances.

Clinton Wilkins
Potentially store up your finances and shop local, buy local. And it’s the same thing when you support a mortgage broker, for example, I’m self-employed, and you’re supporting a local business. Yes, we do business with the banks, but you’re pumping money into our local economy. Here in Halifax, in Atlantic Canada, when you support a mortgage broker. So that’s just one example.

Refinancing and Renewal Strategies

Todd Veinotte
That all said, do you think that people who are looking at potentially a $750,000 house might be scaling that back a little bit more or a million-dollar house?

Clinton Wilkins
They might. I don’t know yet where that will hit in terms of home buying, I’m expecting it to be busy just because the rates are lower now than they were last year. So I think we’re gonna see more of that pent-up demand get satisfied. I think the biggest demand, though, Todd, is around that average price price point. We’re talking that five to $600,000 range. That’s where we’re seeing the highest demand in the marketplace. And I think we’re gonna continue seeing it. I think the higher the price point goes, the less demand. But again, I think we’re getting back to a more of a normal situation in terms of real estate, like 2019, now there are some other concerns that people are going to want to continue to watch. Like, I’m watching what’s going on with the Bank of Canada. We’re on this every single day. I’m also watching the bond market. Let me tell you, markets are taking a beating here this week, and I wouldn’t be surprised if we start seeing some interest rates go down just due to what’s going on in the market. I said next year, we’ll probably see rates in the threes. We might see rates in the threes before next year if things continue going the way that they’re going. So I think that’s something very interesting to watch. But again, don’t wait. We have so many people waiting on renewal or waiting to do transactions, and then it turns into a hot rush. Some people are renewing this month if we had talked to them three or four months ago, we could have given them a better deal. The way that we operate is we get an approval that everyone’s gonna be happy with. That’s kind of the worst-case scenario. If the rates go down, we float the rate down for people. And I think that’s a misconception that people have. Is the stress test still applicable? The stress test is certainly still applicable if you’re buying or refinancing on a renewal, no stress test. So that’s positive. To recap, I know we talked about this in January, but first time, home buyers are now able to get a 30-year amortization with a high ratio insured mortgage or any borrower that buys a new construction property. So I think that will enable people to maybe qualify for a little bit more and maybe get some buyers that weren’t able to get into the marketplace before into the market.

Emotional Aspects of Home Ownership

Todd Veinotte
I think, though, that there’s a lot of concern at renewal that the interest rates could potentially be much higher than the renewal cliff. We didn’t see that, did we?

Clinton Wilkins
I think it’s a softer landing. But with this caveat, I can tell you, there’s a lot of people coming out for renewal that we’re doing a refinance for, and we’re doing more refinances than we are transferring from lender to lender. And what we consider a transfer is with no new funds, maybe keeping the amortization in line, maybe just going to a new lender to get a better rate. But we’re doing more restructuring and more refinancing. In a sense, people are taking longer amortizations, and they’re taking some equity out of their homes, whether that’s for a home equity line of credit for future use, consolidation of debt renovations, or maybe for investment purposes. And I think that’s kind of a good circle back on Love Your Home. We talked about, buying a new home and some home buyers, but some people are in homes that it’s still a great location for them, but they want to improve it. And again, when we’re talking about hunkering down, building a war chest, all of these things, maybe it’s time to stay home and stay local but maybe you can improve your property as a lot of people did during COVID. I think renovation is a great way to add value to your property, and you can refinance your home up to 80% of the market value and pull equity out to be able to make improvements.

Todd Veinotte
And what’s the term for the best home in the or the worst home in the best location?

Clinton Wilkins
Worst home in the best location? Yeah, you always want to be in on the best street. You can always change your home, and that’s how you can maybe love your home, but it’s really hard. The change in the location is a lot of friction, because you have to sell your home and buy another one, and you just can’t pick your home up and go somewhere else.

Todd Veinotte
Amenities and all these things, and water and sewer…

Clinton Wilkins
All these things are what we learned a lot last summer with the fires and – location, location, location! You have to ask a lot of questions. Typically, properties that are on city water and city sewer have a higher value than people that are on their resources.

Todd Veinotte
It is February, the month of love. But sometimes love doesn’t always work out right.

Clinton Wilkins
That’s right. We’ve all been through it.

Todd Veinotte
A lot of us have been through it, for sure. We’ve got a guest coming up!

Clinton Wilkins
We do have a guest. We have Leigh Davis, who’s a family law lawyer here in Halifax, and she’s going to be with us, and we’re going to ask her some questions. We’ll be right back.