Last Updated on October 24, 2023 by Dalia Barsoum
Hi, I am Dalia, the founder of Streetwise Mortgages.
If you are currently feeling overwhelmed by the uncertainty in the real estate market and the sheer volume and pace of news relating to lending, credit, and the real estate landscape, I want you to know that you are not alone.
I am reaching out today to help quiet down some of that noise and share with you the few key things that you need to be aware of heading into the next 12 months. This will empower you with respect to rates, whether considering refinancing, renewing, or buying a property to make informed, not emotional, decisions (because we are definitely seeing more momentum).
First, let me paint a picture of the backdrop of the rate environment; The Bank of Canada (BOC) has signalled its holding off on any further increases to the overnight rate and confirmed its position by not raising the overnight rate during the last BOC meeting.
Inflation is easing up based on the Consumer Price Index (CPI) trends, although the labour market remains tight.
The collapse of Silicon Valley Bank and Credit Suisse in the United States (U.S.) has created extra uncertainty about the stability of the financial system in the U.S. and global concerns about banks’ liquidity overall.
With this backdrop:
The rate hike cycle in Canada appears to have finally ended. This is comforting for many.
The market is expecting the next move by the Bank of Canada to be a rate cut in the second quarter of 2024 or possibly sooner.
No one really knows the exact timing, but a rate cut is now on the horizon.
Cuts will happen gradually to bring prime down over time by 100 – 200 points. We will unlikely see Prime go back to pandemic levels unless something significant triggers that.
Fixed rates have dropped over the past few weeks as the bond market reacted to the uncertain credit environment.
Right now something funky is going on with rates.
The 1, 2, 3, 4, and 5-year fixed terms are lower than the five-year variable rates. The longer the fixed-rate term, the lower the rate, at the moment.
Also, banking regulators in both Canada and the U.S. are proposing changes that will result in tighter lending overall.
What does all of this mean for you?
1. Given that a cut by the BOC is now on the horizon:
I invite you to consider riding the rate roller coaster as it goes down. In so doing, you will save interest and improve your cash flow.
How do you do that?
If you are currently on an adjustable-rate mortgage. As much as it is painful right now as your payments have gone up significantly,sticking with your adjustable-rate mortgage means that your monthly payment will go down immediately as soon as Prime starts to go down, and it will continue to do so every time the BOC cuts the overnight rate.
If you are on a variable-rate mortgage, where the payment stays fixed but the allocation beneath the surface between interest and principal changes with changes to the overnight rate, you need to check with your lender what their policy is regarding adjusting the payment.
Being on a variable rate does not guarantee that your payment will go down. If you want your payment to go down, then consider switching to an adjustable-rate mortgage.
If you are going to make a new rate decision because of a renewal, purchase, or equity takeout.
You may be tempted right now to take a long-term, fixed-rate loan because the rates are lower (and they are cheaper the longer the term).
While that may serve you in the short run, it will hinder your ability to benefit from lower payments when the rates start coming down.
Consider therefore a 1-year fixed term or a variable rate.
Now, although I am sharing with you an overall rate strategy, your final rate decision should be within the context of your individual plans and plans for the property over the mortgage term.
Therefore, it is important to consult with your mortgage advisor to assess the suitability of the mortgage product and terms to your unique circumstances.
2. With tighter lending guidelines on the horizon, consider increasing liquidity and restructuring any expensive debts that you have.
You can increase liquidity by setting up a secured line of credit or increasing those that you have.
Restructuring debts now will help you enhance how your balance sheet looks for any future financing that is needed under tighter guidelines.
My team and I are here to help you make the right and most informed rate decision, given your plans and current finances. We are here to help you move forward with certainty despite the uncertain environment.
We are just a quick email away.
Reach out to us at info@streetwisemortgages.com
Dalia Barsoum is the founder of Streetwise Wealth, a boutique real estate wealth advisory firm, and Streetwise Mortgages, a multi-award-winning brokerage specializing in income property financing. Streetwise Mortgages is known as Canada's #1 small markets broker (AKA rental markets) as ranked by Canadian Mortgage Professionals.
The team at Streetwise Mortgages has funded over 1 billion dollars of mortgage volume and over 2700 mortgage transactions ranging from residential, multi-family, mixed-use, and other construction projects.
Dalia is the best-selling author of Canadian Investor Financing: 7 Secrets to Getting All The Money You Want, a columnist for Canadian Real Estate Wealth magazine and has been recognized as a Global 100 mortgage professional, one of Canada’s top 10 brokers, and a woman of influence.
Through strategic real estate financing advice, sophisticated deal structuring solutions, and access to an understanding of all the money tools and capital structures investors use to grow (private money, traditional mortgages, alternative mortgages, GP/LP structures, corporate capital structures, and joint ventures), Dalia and her team have helped thousands of Canadians kick start their real estate investment journey and take their portfolios to the next level while managing risk.
