Good morning,

2023 starts off where it left off – the Bank of Canada raised interest rates this morning for the 8th consecutive meeting.  The good news is it was only 0.25%.  The pace has officially slowed.  The next step is to pause.  Then to drop – a ways away but this is a step in the right direction.

The wording to key on in this morning’s release was that if economic developments evolve in line with expectations they expect to “hold the policy rate at it’s current level.”  That doesn’t mean this WILL BE the last hike.  It means it COULD be the last hike.  Taking that in & piling into risk assets is a great way to make sure this is NOT the last hike. 

THE mistake just about everyone made last year, myself included, was underestimating central bank action.  Rates were kept so low for so long that no one really believed we would see the about face & aggressive rate hikes that we ended up seeing.  The reason being that it was obvious that would cause a world of economic pain & it most certainly is.  The mistake was not recognizing that became the intention.  That became the justification TO raise, not the reason NOT to. 

Remember, the only tool the Bank of Canada has to bring down inflation is crushing the economy.  They can’t create more goods.  They can’t change government spending.  They can, however, make borrowing so expensive that it results in people selling assets & cutting spending to kill demand.  They want & need a recession.  They want job losses.  It just take time for the impact of raising to be felt throughout the economy & we are now into that point.

While 1 & 2 year fixed rates are still very high, 3, 4 & 5 year fixed rates have come down significantly in the last month.  5 year fixed rates are now in the mid 4% range & the trend, right now, is for rates heading in the right direction. 

I’ve been getting a lot of questions on whether clients should be paying down their mortgages right now.  If you’re in a variable rate, yes you 100% should as you get a guaranteed return & save on interest as soon as you make that extra payment. 

If you’re in a fixed rate, though, & your rate is well under 4%, instead of paying down your mortgage, dump that cash into GICs.  You can still get GIC rates of 5% or higher from places like EQ BANK so if that is higher than your mortgage rate, you can profit by continuing to borrow at your lower mortgage rate & earning a guaranteed return over 5%.  Just make sure you aren’t locking in that investment beyond your mortgage term so that you have the option of paying down your mortgage prior to renewal if mortgage rates are still elevated at that time.  If you have 8 months until mortgage renewal, don’t go into a 12 month GIC.

There are a lot of mortgage renewals coming in Canada this year & the vast majority of the industry does not understand some of the tricks on how to get better pricing on mortgage renewals.  Please, if you have friends or family who have mortgages coming up for renewal, put them in touch with me.  I won’t waste anyone’s time.  I very often will help clients even if it means not working with me, but in a lot of cases we’re saving significant amounts by knowing how to structure the renewal properly.  Give that gift to the people in your life this applies to & please put us in touch. ​

TAKEAWAYS

• Variable rates & LOC rates increase by 0.25% 
  
• Bank of Canada signals this could be the last hike (barring surprises)
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• ​Fixed rates have started to come down
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• HAVE EXTRA CASH?  Do this:
  • if in a Variable Rate Mortgage, consider paying down your mortgage.
  • if in a Fixed Rate, consider putting cash into GICS instead (returns still 5%+)