When it comes to interest rates, we’ll be happy to bid farewell to 2023. From an overnight rate of 4.25% in late 2022 to the current 5%, coupled with rising fixed rates, Canadians have had to weather the impact of high rates. However, there is definite optimism that interest rate relief is on the way.
Rate Cuts Expected in 2024
Economists aren’t pondering if the Bank of Canada will cut the overnight rate, but rather when. Though nothing is set in stone, compelling reasons suggest that rate cuts may be on the horizon as early as April. Here’s why:
- High Canadian Debt Levels: Alarming levels of Canadian debt, positioning the country with one of the world’s highest household debt-to-income ratios, are one reason behind anticipated rate drops. According to Statistics Canada, in Q3 2023, households owed $1.82 in credit market debt for every dollar of disposable income in the third quarter. Household debt servicing, measured as total credit payments as a proportion of household disposable income, rose to 15.22% as debt payments expanded faster than household disposable income.
- Mortgage Renewal Payment Shock: According to RBC Capital Markets, between 2024 and 2026, an estimated $900 billion in mortgages – almost 60% of all outstanding mortgages at chartered banks – are due to renew with a sharp increase in payments. This will be a looming economic catastrophe if rates don’t fall. While rates may not return to pandemic lows, each cut will aid homeowners facing renewals.
- Mortgage Interest’s Impact on Current Inflation: Mortgage interest rates are playing a pivotal role in current inflation numbers. Mortgage interest contributes significantly to overall inflationary pressure. Lowering the overnight rate becomes a strategic move to bring inflation closer to the 2% target.
- Canada’s Potential Recession: Economic indicators like negative GDP and rising unemployment signal a potential recession, which could get worse if there is no relief for debt levels and mortgage renewals. The Bank of Canada can use rate cuts to cushion the impact of a potential downturn and reignite the economy.
Navigating the Terrain: Strategies for Success in 2024
As we welcome 2024, consider impactful financial strategies to guide you toward your goals. Here are eight strategies and tips tailored to various situations to empower you on your financial journey in the coming year!
- Have a Proactive Mortgage Renewal Focus: If you have an upcoming mortgage renewal, be sure to prepare early so you can take full advantage of the important moment of opportunity. Being proactive with your mortgage renewal allows you to secure the best rate and terms for your situation. You can also make sure you align your mortgage terms with financial goals, leverage your home equity should you need to consolidate debt or fund a large expense, adapt your mortgage to changing life circumstances, and take advantage of competitive offers from lenders. Rakhi Madan is a Mortgage Renewal Expert and will guide you through this important financial opportunity.
- Strategic Debt Consolidation: Debt consolidation is a beneficial financial strategy for several reasons. Firstly, it simplifies finances by combining multiple debts into one manageable payment. This not only streamlines budgeting but also reduces the risk of missing payments. Secondly, debt consolidation pays off your high-interest debt, decreasing the cost of your debt. Additionally, you can achieve a lower monthly debt payment, offering immediate relief to individuals struggling with their overall debt load.
- Refinance for Cash Flow Relief: Refinancing for cash flow relief involves extending the amortization period of your mortgage. This strategy is used to improve short-term cash flow for those homeowners facing temporary financial challenges. Amortization is the length of time it takes to pay off your mortgage in full. By extending the amortization of your mortgage, you spread the repayment over a longer period and reduce your monthly mortgage payments. While this provides immediate relief by lowering monthly obligations, it’s essential to consider the long-term impact, as extending the amortization results in paying your mortgage for longer.
- Take a New Look at Variable Mortgages: With declining rates on the horizon, revisit variable or adjustable-rate mortgage options. An Adjustable Mortgage boosts cash flow when the Bank of Canada lowers rates, while a Variable Mortgage maintains constant payments regardless of rate changes. The best option for you depends on your cash flow needs and financial goals.
- Homebuyers Should Seize the Opportunity: Lower rates are anticipated to rejuvenate the housing market, potentially bringing back bidding wars and escalating prices. Why? We have a chronic lack of housing supply, and our growing population continues to fuel housing demand.
Seizing the opportunity now could mean securing your dream home at a reduced price and with the lowest possible down payment. Don’t wait. Yes, interest rates are currently high, but remember, your rate is only relevant during your mortgage term. The satisfaction of purchasing a house at a great price lasts a lifetime.
For potential homebuyers, the advice is crystal clear:act now if you are financially ready. Lower interest rates can act as a catalyst for the housing market, potentially driving prices higher. If you need assistance qualifying for a mortgage, explore strategies such as gifted down payments, co-signers, co-ownership, and alternative lenders. A home with a rental suite could help you buy a single-family home instead of a condo, get you into that neighbourhood you love, or help you offset mortgage payments. The path to homeownership awaits – seize the opportunity!
- Maintain Your Credit: Securing the best mortgage rates hinges on maintaining a solid credit score. Lenders reserve their most favorable rates for borrowers with scores above a certain threshold. By consistently managing your credit responsibly, paying bills on time, and minimizing outstanding debts, you position yourself to qualify for these top-tier rates. A robust credit score not only opens doors to better mortgage terms but also reflects your financial responsibility, making you an attractive borrower in the eyes of lenders.
- Be Aware that Best Rate Quotes May Not Apply: It’s important to note that the best rate available to you is influenced by a myriad of factors unique to your financial situation. While online rate quotes can provide a general idea, the accuracy of your rate quote depends on various elements specific to your financial situation, your downpayment amount, and the type of mortgage you need. To ensure you receive the most accurate and personalized rate quote, we must have a conversation. Through a comprehensive assessment of your situation, I can tailor a mortgage solution that aligns perfectly with your needs and secures the most favorable terms available to you. Your financial journey deserves the precision and customization that comes with a personalized assessment.
- Bought Your First Home in 2023? Take advantage of the Home Buyer Tax Credit that provides up to $1.500 in federal tax relief. Include it on your tax return under Line 31270.
Debt consolidation is a practical solution to regain control over one’s finances, reduce stress, and work towards long-term debt reduction and financial stability. If you want to discuss debt consolidation, we can look at either refinancing your mortgage (20% equity is required) or getting a second mortgage.
Get Expert Advice with Top-Rated Brampton Mortgage Broker Rakhi Madan
As we anticipate a year of opportunities in 2024, you will want to navigate the financial landscape wisely. The evolving interest rate scenario presents a chance for homeowners and prospective buyers to make strategic moves. To make the most of these opportunities, there’s no better guide than Rakhi Madan, your trusted Brampton Mortgage Broker. Rakhi possesses the expertise to help you not only navigate the complexities of interest rate changes but also tailor financial strategies that align with your homeownership dreams and long-term goals. Whether it’s proactive mortgage renewal, debt consolidation, or seizing the opportunity in the housing market, Rakhi is your dedicated partner for a successful and financially empowered 2024.
Contact your best Brampton Mortgage Broker Rakhi Madan today and step into the new year with confidence.
