Given it’s a leap year, the deadline to contribute to your Registered Retirement Savings Plan (RSP) for 2023 is technically extended by one day as the deadline lands on February 29^th, 2024.  For those who have both a mortgage and who contribute to Registered Retirement Savings Plans (RSPs), the two combined offer a simple strategy for retirement planning, debt management, and growing your property’s equity.

Leveraging the tax advantages of your RSP to reduce your taxable income through tax-deductible contributions is Step One. Step Two is using the resulting tax refund to make a lump-sum payment on your mortgage. Not only will this accelerate debt-free homeownership, but it can also save you thousands in interest payments over the life of your mortgage.

Aligning your RSP strategy with your mortgage payments can create a dual benefit. By consistently contributing to your RSP while making mortgage payments, you’re not only building home equity but also grows your retirement fund. Speaking with your financial planner and me on the mortgage side can help you formulate the plan that makes the most sense for you.  We are here to help you strike the best balance between debt reduction and wealth accumulation in alignment with your goals.  And if you don’t have a financial planner, I would be happy to make an introduction.

With the right RSP-mortgage strategy, you’ll be on the path to a more financially secure retirement while paying off your mortgage faster than you may have thought possible.

Feel free to reach out, I look forward to seeing how I can help.

The Bank of Canada held the overnight rate at 5% for the fourth consecutive meeting but provided an outlook suggesting that monetary easing will begin by mid-year. The Bank forecasts a soft landing for the Canadian economy, with inflation falling to 2.5% by the end of this year. While some economists predict a recession, the Bank suggests that “growth will likely remain close to zero through the first quarter of 2024” and “strengthen gradually around the middle of 2024.” This would be a soft landing.

While inflation ended 2023 at 3.4%, owing mainly to high and sticky shelter costs, “the Bank expects inflation to remain close to 3% during the first half of this year before gradually easing, returning to the 2% target in 2025. While the slowdown in demand is reducing price pressures in a broader number of CPI components and corporate pricing behaviour continues to normalize, core measures of inflation are not showing sustained declines.”

The press release says that the “Governing Council wants to see further and sustained easing in core inflation and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.”  The Bank now believes the economy is in excess supply, inflation expectations and corporate pricing behaviour are moving in the right direction, and wage demands, at 5.4% year-over-year in the last reading–are still too high. Wages are a lagging indicator and with job vacancies returning to pre-pandemic levels, wage pressures are likely to dissipate as the year progresses.

The tone [is now] was much more optimistic, suggesting that policymakers are increasingly confident interest rates are restrictive enough to bring inflation back to the 2% target. Still, Bank officials want to see more progress on core inflation before it begins to ease. It said, “The Bank’s preferred measures of core inflation have been around 3½-4%, with the October data coming in towards the lower end of this range.”

The central bank focuses on “the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour” and remains resolute in restoring price stability.

Bottom Line

This was a more upbeat Bank of Canada statement. There is a good chance that monetary tightening has done its job, and inflation will trend downward in the coming months. As we have seen, the road to 2% inflation is bumpy, but we are heading there probably sooner than the Bank expects. As predicted, they are staying the course for now, but multiple rate cuts are likely this year. The scheduled dates for announcing the policy rate are March 6, April 10, June 5 and July 24. The Bank of Canada will begin cutting the overnight rate somewhere in there.

For now, my bet is on the June meeting, but if I’m wrong, it will likely be sooner rather than later. Once they begin to take rates down, they will do so gradually, 25 basis points at a time, and over a series of meetings. We could well see rates fall by 100-to-150 bps this year. Risks to the outlook remain, as always.

I do not expect the overnight policy rate to fall as low as the pre-Covid level of 1.75% this cycle. Inflation averaged less than 2% in the five years before COVID-19, depressed by increasing globalization and technological advances. Those forces are now reversed.

Many Canadians consider downsizing during their retirement years. Once their children have left the nest, the choice seems obvious: relocate to a smaller residence or a more affordable town and capitalize on the price difference. For many retirees, the funds from the sale of their home can significantly impact their overall lifestyle and financial well-being.

However, there are costs of downsizing to be aware of when reviewing your options.

Downsizing in Canada: A Cost Analysis

The cost of moving is an important factor to consider when deciding whether to downsize. The following is a cost analysis for a typical downsizing scenario using an example of selling a home for $1,000,000 and buying a condo for $700,000.

The money from the sale of your home could have a meaningful impact on your retirement finances.  Theoretically, these transactions would free up $300,000 in equity while moving into a smaller home. But how much of would you get to keep? Below is an estimated list of associated downsizing costs:

The following are estimates and can vary by provider and region:

Downsizing costs could add up to between $72,175 – $94,875; and $300,000 of equity could be reduced to $205,125 after costs on the high end.

The following may also add to downsizing costs:

• Home Improvements: Before selling, homes often need upgrades, from simple fixes to major renovations like kitchens or roofs. Also, many invest in staging their homes.
• Belonging Decisions: Downsizing sometimes requires storage expenses for items that don’t fit in your new home.

An Alternative to Downsizing in Canada: The CHIP Reverse Mortgage 

The CHIP Reverse Mortgage by HomeEquity Bank offers an alternative to downsizing allowing you to potentially unlock up to 55% of your home’s equity.  These funds are tax-free and would allow you to staying in your home without leaving your community. Retirement finances can be improved, and funds can be directed to renovations or retrofitting your home for accessibility and livability as you get older. With no required monthly mortgage payments to make, the CHIP Reverse Mortgage is a popular solution.

Contact me to learn how a CHIP Reverse Mortgage can help you save on downsizing and potentially support your retirement.  I’m always happy to help.

Adapted from DLC Marketing

Image Credit: Nick Karvounis Unsplash

We Canadians are no strangers to the chill of the winter season. Double-checking your list of home-winterizing to-do’s could help you save on bills, prevent future repair costs, and be more comfortable all winter long.  Here are eight items to keep on that cold-weather list to button up each winter:

1) Inspect Your Fireplace: There is no better time to have your fireplace inspected to ensure optimal efficiency and heat output. Whether you have a wood-burning, gas, or electrical fireplace, proper maintenance can go a long way on your heating bill.

2) Maintain Your Furnace: While you’re having your fireplace inspected, why not have them inspect your furnace?  When it’s time, replacements are often more efficient than those of the previous generation, which will likely help save on energy costs.  Either way, ensuring your furnace is in working order will guarantee top output and a cozy winter.

3) Clean The Gutters:  Cleaning your gutters from fall leaves and other debris will help ensure proper drainage for melting snow. To go the extra step, consider gutter guards. These can help keep out unwanted objects, and look tidier on gutters you may see from above, such as those lining decks.

4) Examine Your Roof: If you’re not snow-bound yet, while you’re prepping your gutters, examining the roof is a good idea. Shingles, flashing, and ventilation should all be checked and repaired where necessary.  Staining from water damage should especially be addressed.

5) Consider a Programmable Thermostat: According to experts, a one-degree drop in your home temperature can measure up to 1% on your heating bill. Smart thermostats are a great way to keep warm and optimize your energy savings. Ideally, you’ll want to set your thermostat to turn up in the morning, turn down when you go to work, and back up in the evening just before returning home to ensure a warm welcome.

6) Insulate Windows: Always be sure to check your windows for any gaps or water leakage and get them resealed as soon as possible. If you live in a particularly cold location, consider swapping out your windows to double-paned glass for an added layer of insulation. Another tip to keep the cold from seeping in is swapping out your curtains for a heavier, thermal-lined set which can do wonders.

7) Check Your Pipes: Checking pipe joints for leaks that could cause rot and damage will save you trouble in the future. Repair any cracks you find, especially those around electrical outlets and alarm system lines. You can also consider foam pipe insulation, which is fairly easy to install and could help prevent energy loss and potential water damage from frozen pipes.

8) Stock Up on Supplies: There are a few things you might want to consider stocking up on ahead of time for the winter season, such as flashlights and batteries, ice melt, extra pet food and canned goods, and an emergency storm kit that includes an extra flashlight, candles, portable radio, water, and snacks.

With a little preparation, you can keep your home in good shape and stay cozy all winter long.

As always, if you or someone you know needs mortgage information, feel free to reach out, I’m always happy to help.

Adapted from: DLC Marketing

Image Credit: Nachelle Nocom Unsplash