Mortgage renewal time provides many opportunities to save and align your mortgage terms with your short and long-term plans.  Leaving yourself enough time is essential to make the most of the options to give yourself the most flexibility possible, and to grow your net worth.

Opportunities at Renewal Time

You have many options available to you without paying a penalty at the end of your term at renewal time, options which are not always readily apparent.

• Better Interest Rates and Terms: As your mortgage consultant, I shop across banks, trust companies, credit unions, and other mortgage lenders to compare rates and terms with what your lender offers at renewal.
• Switch To Fixed or Variable: Consider switching from a fixed-rate to a variable-rate mortgage, or vice versa, based on market conditions and your financial plans.
• Add a Home Equity Line of Credit: Give yourself the flexibility of accessing some of your home’s equity to renovate, invest in other property, or cover other expenses now or in the future. If you’re getting close to the end of your career, this is an important step in planning for retirement and time is of the essence to qualify before reducing your income from employment.
• Adjust Mortgage Terms: Modify the term length of your mortgage to suit your financial plans taking rate forecasts into account
• Increase Prepayment Privileges: If paying off your mortgage faster is important. switch to a lender offering higher prepayment privileges without penalties.
• Increase Your Amortization: Lower your monthly payment by increasing the amortization on your mortgage. If cash flow is a concern, or if you’d like to invest at a higher rate of return than you’re paying on your mortgage, increasing your amortization might best suit your plans for the time being.
• Consolidate Debt: Use the renewal time to consolidate other debts into your mortgage for lower interest rates than you’re paying currently.
• Access Equity: Take advantage of your home’s increased equity for renovations, to invest in other property, or other financial needs by increasing your mortgage, or adding a Home Equity Line of Credit (HELOC).   If you’re getting close to the end of your career, adding a HELOC is an important step in planning for retirement.  Time is of the essence to qualify before reducing your income from employment.
• Consider a Reverse Mortgage: Would converting to a reverse mortgage relieve financial pressure? If you’re 55 or over, you may be able to convert your existing mortgage, stop making mortgage payments, and cover other financial needs.  The property remains in your name and you can still leave your property to your children or others.  Property taxes can typically be deferred too.

Benefits of Starting Early

• Maximize Savings: Early engagement allows a thorough comparison of current mortgage rates and terms available to you.
• Optimal Transfer Window: Transferring your mortgage to another lender after your renewal date is possible. However, your lender will likely charge you higher interest for each day of delay past the renewal date, and interest can add up.  Transferring as close to your renewal date will save you the most money.  In some cases, transfer costs can be covered by the new lender and transferring on time will ensure you maximize your renewal time savings opportunities.
• Avoid Last-Minute Stress: Starting early prevents rushed decisions and ensures a smoother transition, properly aligned with your short and long-term financial opportunities.

Discussing with me ahead of time will help set you on track to make an informed choice.  Anticipate your options in advance to secure the best value available.  Contact me any time to plan for your next renewal.  I am always happy to help.

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The Canadian Real Estate Association (CREA) announced today that national home sales fell 0.6% in May, remaining slightly below the average of the past ten years. Actual (not seasonally adjusted) monthly activity was 5.9% below May 2023.

With the Bank of Canada rate cut on June 5, housing activity will likely perk up in the coming months. The central bank will likely reduce the overnight policy rate from 4.75% to 3.0% by the end of next year. While interest rates will remain above pre-pandemic levels, there is pent-up demand for housing, and activity will surely rise over the next year.

New Listings

The number of newly listed homes was up in May, though only by 0.5% monthly. Slower sales amid more new listings this year have increased the number of homes for sale across most Canadian housing markets.

As of the end of May 2024, about 175,000 properties were listed for sale on all Canadian MLS® Systems, up 28.4% from a year earlier but still below historical averages.

“The spring housing market usually starts before all the snow has melted, somewhere around the beginning of April, but this year I believe a lot of people were waiting for the Bank of Canada to wave the green flag,” said James Mabey, Chair of CREA. “That first rate cut is expected to bring some pent-up demand back into the market, and those buyers will find there are more homes to choose from right now than at any other point in almost five years.”

With sales down slightly and new listings up slightly in May, the national sales-to-new listings ratio eased to 52.6% compared to 53.3% in April. The long-term average for the national sales-to-new listings ratio is 55%. A sales-to-new listings ratio between 45% and 65% is generally consistent with balanced housing market conditions. There were 4.4 months of inventory on a national basis at the end of May 2024, up from 4.2 months at the end of April and, looking past the volatility at the onset of the COVID-19 pandemic, the highest level for this measure since the fall of 2019. The long-term average is about five months of inventory.

Home Prices

The National Composite MLS® Home Price Index (HPI) dipped 0.2% from April to May.

Regionally, prices are generally sliding sideways across most of the country. The exceptions remain Calgary, Edmonton, and Saskatoon, where prices have steadily ticked higher since the beginning of last year.

The non-seasonally adjusted National Composite MLS® HPI stood 2.4% below May 2023. This mostly reflects the price surge that started last April and hasn’t been repeated in 2024.

Bottom Line

Housing activity will gradually accelerate over the next year as interest rates continue to fall. The Bank of Canada was the first major central bank to ease monetary policy. While there has been some concern regarding the impact on the Canadian dollar of repeated easing by the Bank with the US Federal Reserve on hold, the divergence may be smaller than expected. Recent US inflation data showed a meaningful improvement, suggesting the Fed could cut rates two times before the end of the year. Moreover, movements in the loonie have little near-term impact on inflation.

The Canadian economy is far more interest-sensitive than the US, and the relative underperformance of our economy is the largest since 1965. Further rate cuts by the Bank of Canada are warranted.

Dr. Sherry Cooper

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The Bank of Canada has cut the overnight rate for the first time in four years, a welcome relief to borrowers nationwide.  The prime rate, which sits at 2.2% above the overnight rate, will subsequently drop from 7.2% to 6.95%.  Variable and adjustable rate borrowers, as well as borrowers with Home Equity Lines of Credit (HELOCs), will all benefit.

Economic Insights

The Bank noted the US is showing deceleration in economic activity, and conversely, activity picked up in the euro area during the first quarter of 2024. China’s economy is growing, driven by exports and industrial production, though their domestic demand is still weak.  Overall, inflation is continuing to ease globally in most advanced economies.

The Bank also noted that in Canada, after stalling in the latter part of 2023, economic growth resumed, though more slowly than forecasted.  Employment growth was also cited as being slower than that of the working-age population, but with wage pressures moderating.

The full press release can be viewed via this link.

What Does This Mean For Borrowers?

The reduction in the overnight rate will translate into more favorable borrowing costs for property owners and potential buyers.

Variable rate borrowers with payments that don’t change with changes in the prime rate will see a reduction in mortgage interest costs, but their payments will remain the same.  Most major banks’ variable mortgage payments stay the same with changes in the prime rate.  Adjustable rate borrowers will see a reduction in interest costs and their payments will drop accordingly.

HELOC rates will also drop with today’s .25% reduction in the overnight rate.

The drop in the prime rate will not affect fixed rate borrowers’ mortgage rates or payments.  Though with bond yields dropping recently, a reduction in fixed interest rates may be on the horizon too.

Extent of Interest Rate Savings

Depending on the rate and amortization, mortgage interest costs per $100,000 will decrease by approximately $14 monthly.   Borrowers will save about $21 monthly on lines of credit interest costs per $100,000.

Strategic Financial Planning

Expectations for further cuts this year are for a 40% chance of another reduction in July, a 100% chance of another cut by September, and another by December.  Predictions roughly total a reduction of .75% off the prime rate for 2024.

I am here to help you navigate the implications with strategic advice tailored specifically for you.

If you’d like a review of the opportunities as they relate to growing your net worth, please feel free to be in touch.  I am always happy to help.

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