Reaction to the BoC Rate Accouncement
Editorial Note
When I think about social media and big news announcements, mostly everyone is regurgitating the same content. I saw it 1000 times yesterday. The variable rate dropped! Contact me to find out how this affects you!
I get it. Everyone’s trying to use interest rates as a talking point to spur on business. It’s easy enough for any professional tell everyone what happened. It really loses it’s effect though when we hear if from 50 different people.
I’m different. I’m actually trying to give you a real analysis, a no-BS outlook on the change, and yes, how it ACTUALLY affects you, or your financing and real estate strategy.
Real opinion and commentary is what I’m going for, not the templated stuff.
So let’s get right into it.
The BoC overnight rate dropped. Your strategy really shouldn’t have changed (all that much, anyways).
I get these calls all the time. Folks asking me if they should wait for a rate drop. If it changes the rate on their approval.
Well, first of all, this rate drop has no affect on fixed rates (well, no DIRECT affect, anyways).
This rate drop only affects variable rates. And, the rate drop has no effect on the SPREAD that your lender is offering you. Meaning, if your lender was offering you Prime – 1.00% before the rate drop, they’d still be offering you P-1.00% after the rate drop. The rate drop doesn’t affect pricing spreads (again, not directly, anyways).
So we know the rate drop doesn’t really have any major affect on choosing your mortgage.
It’s just 0.25%! It is a signal though, of what’s to come.
There are a few cases where someone was totally convinced (before yesterday’s drop) that rates were never going to come down. This is obvious fallacy as all these things happen in CYCLES. Cycles, people! So, yes, I guess with some folks, this rate drop may have helped them change their decisioning from a fixed rate, to going variable.
If said folks had been chatting with me all along, they probably would have known that I’m generally recommending the variable rate to most people anyways. The benefits of being variable are again starting now. The ability to ride the wave down, and also the ability to lock into a possibly much lower fixed rate, as fixed rates continue their downward drop.
Tiff Macklem was very adamant in his messaging that he is taking things one meeting at a time, and we should not necessarily expect another rate drop right away. 0.25% off of 7.20% does not make a significant dent in the rate. The rate still remains incredibly high. Don’t let this be a downer, though. Yes, this does signal that the bank is loosening up monetary policy, and the tightening cycle has come to a close.
Remember this thing about the perception of time.
I think I’ve mentioned in the past that we have to really consider that time is relative. 1 month is 1/3 of 3 months, 3 months is half of 6 months, 6 months is half of one year, and one year is one fifth of a 5 year term.
You’re thinking sarcastically, wow David, thanks for the grade 4 (or 6?) math lesson.
But think about it. One month is 1/60th of 5 years.
My point is, things take time, and, 5 years is a very long time. Just because this rate dropped this one time, does not mean we are even close to the lows. There will be more to come, and it will take time.
Things don’t generally happen quickly, and things never go in a straight line.
We cannot expect things to happen so quickly. Yes, the fixed rates will continue to drop, but they will do so at a gradual pace. In another 6 months to a year, anything could change. I do personally think fixed rates will eventually drop to somewhere between 3.50% to 4.00%, and I think it will happen within a year to a year and a half. So, I ask my clients, don’t you think it’s better to just wait for 3.50%, 5 year money, versus locking in right now at 4.79%?
Some people will say it’s worth the wait, and others will say they would rather just lock in at whatever the rate is now. NEWSFLASH! It’s just my job to propose all these questions and make my clients think about their options. They end up making their decision, on what they are comfortable with. I am merely here to point out all the different factors.
Pricing is dependent now. Dependent on what? (mostly for UNINSURED mortgages)
Maybe the 3 year rates look more attractive, but the uninsured 3 year rates are hovering around 5.40%, or thereabouts. That’s the thing about uninsured rates. I can’t really guarantee any rates on uninsured deals until I send the deal to a lender. Only after the bank sees the deal and approves it, will they let us know the rate they’re granting. It’s somewhat unknown before that point. One client of mine just got 5.09% on 3 year money, another got 5.29%, and yet another got 5.44%.
No, it wasn’t a failure of my negotiating skills, its that the banks price their uninsured rates based on the size of the mortgage, the qualifying factors, and just by how the wind is blowing that day. Think this is crazy? Prove me wrong.
Get To Know Us, WAY BETTER! Watch our new Mortgage Matters Podcast.
I had so much fun going onto Adrian and Vincent’s podcast a few weeks ago, and feel like podcasting is a great way for us to disseminate information and opinion. But it’s also a great way for you, our clients, potential clients, and anyone else, just to get to know us on a more personal level!
Nicole McConnell and I decided to host our own podcast, and we are calling it Mortgage Matters. Get to know us! Check it out, give it a listen, and please, give us your feedback!
Watch The Mortgage Matters Podcast Here
Ok, enough about mortgages. Here’s another beef I have.
For those of us that remember the good old days, when did we ever have dropped calls on a landline? Or “bad signal”? Sometimes I think that cellphone technology is putting us back in time. It’s making us worse off. In the 15 to 20 to 30 calls I have per day, about 3 to 5 of those are bad signal, lost signal, dropped call, you name it. It’s time consuming and annoying. Remember the good old days when we had the phone with the cord, and we didn’t know what a “dropped call” was?
Now, I know there’s nothing I can do to change any of this, but I’m really considering a landline again for the household. I already have a “no cellphone” policy when friends are over, when we’re eating a meal, or generally spending family time together. Maybe I should one up my no tech policy and bring back the landline. LOL!
But on this topic of bringing things back to the old days,
Remember when we used to meet in person, and have meetings?
I’m putting this out there for your consideration. I’m thinking of hosting an in person event where I have 2 or 3 guests, invite anyone interested (in the industry or not) and we all talk about interest rates, mortgages, real estate, and anything and all in between. I’m picturing a banquet room at some hotel, some refreshments, and an hours worth of good conversation focused around mortgages and real estate.
(poll was placed in the original newsletter sent out June 6th. If you would like to attend an in person meeting please contact us through the contact form)
And Lastly: Another different kind of review – My encounter at Thrifties.
Here’s a fun story to finish things off this week. I was in Hillside Thrifties picking up some basics. I was in socks and sandals, sweatpants, and generally in my weekend outfit. I was grabbing milk from the fridge and noticed a nice looking fellow on the other side of the glass waving at me, like he knew me.
“David Steinberg, right?”
I looked at him and thought to myself – Damn, I wish I could remember, and gave him a little shrug (no emoticon here people, just your imagination).
He shook his head and realized immediately that I probably wouldn’t recognize him, and kindly said right away,
“Ah David, right, you wouldn’t recognize me. I’m Nathan. You did my mortgage in 2014 (or 2013?), and then re-did our mortgage when we moved in 2019. I only recognize you because I read your newsletter every week, and my sister and I discuss your newsletter when we have dinner over the weekend!”
Ah yes, I remember now! Of course I remember you, Nathan. I actually do remember him, but we only met in person once, literally for 10 minutes, when I was collecting his documents, back in the days when I still did house-calls. By the way, I will still do house-calls if someone needs, just ask and I’ll be there.
Anyways, we shook hands and caught up.
Thanks for great feedback Nathan. It’s great to hear that people are reading and enjoying my content. Gave me the warm fuzzies. Cheers!
Signing off for now,
David Steinberg, AMP, BComm
Owner, Lead Broker
Olympic Mortgage
2508587160