Bank of Canada Rate Announcement Mar 10th, 2021

Diane Gogar • Mar 10, 2021

The Bank of Canada today held its target for the overnight rate at the effective lower bound of ¼ percent, with the Bank Rate at ½ percent and the deposit rate at ¼ percent. The Bank is maintaining its extraordinary forward guidance, reinforced and supplemented by its quantitative easing (QE) program, which continues at its current pace of at least $4 billion per week.


The global economy is recovering from the economic effects of COVID-19, albeit with ongoing unevenness across regions and sectors. The US economic recovery appears to be gaining momentum as virus infections decline and fiscal support boosts incomes and consumption. New fiscal stimulus will increase US consumption and output growth further. Global yield curves have steepened, largely reflecting the improved US growth outlook, but global financial conditions remain highly accommodative. Oil and other commodity prices have risen. The Canadian dollar has been relatively stable against the US dollar, but has appreciated against most other currencies.


In Canada, the economy is proving to be more resilient than anticipated to the second wave of the virus and the associated containment measures. Although activity in hard-to-distance sectors continues to be held back, recent data point to continued recovery in the rest of the economy. GDP grew 9.6% in the final quarter of 2020, led by strong inventory accumulation. GDP growth in the first quarter of 2021 is now expected to be positive, rather than the contraction forecast in January. Consumers and businesses are adapting to containment measures, and housing market activity has been much stronger than expected. Improving foreign demand and higher commodity prices have also brightened the prospects for exports and business investment.


Despite the stronger near-term outlook, there is still considerable economic slack and a great deal of uncertainty about the evolution of the virus and the path of economic growth. The labour market is a long way from recovery, with employment still well below pre-COVID levels. Low-wage workers, young people and women have borne the brunt of the job losses. The spread of more transmissible variants of the virus poses the largest downside risk to activity, as localized outbreaks and restrictions could restrain growth and add choppiness to the recovery.


CPI inflation is near the bottom of the 1-3 percent target band but is likely to move temporarily to around the top of the band in the next few months. The expected rise in CPI inflation reflects base-year effects from deep price declines in some goods and services at the outset of the crisis a year ago, combined with higher gasoline prices pushed up by the recent run-up in oil prices. CPI inflation is then expected to moderate as base-year effects dissipate and excess capacity continues to exert downward pressure. Measures of core inflation currently range from 1.3 to 2 percent. 


While economic prospects have improved, the Governing Council judges that the recovery continues to require extraordinary monetary policy support. We remain committed to holding the policy interest rate at the effective lower bound until economic slack is absorbed so that the 2 percent inflation target is sustainably achieved. In the Bank’s January projection, this does not happen until into 2023. To reinforce this commitment and keep interest rates low across the yield curve, the Bank will continue its QE program until the recovery is well underway. As the Governing Council continues to gain confidence in the strength of the recovery, the pace of net purchases of Government of Canada bonds will be adjusted as required. We will continue to provide the appropriate degree of monetary policy stimulus to support the recovery and achieve the inflation objective.


Information note


The next scheduled date for announcing the overnight rate target is April 21, 2021. The next full update of the Bank’s outlook for the economy and inflation, including risks to the projection, will be published in the MPR at the same time.


DIANE GOGAR
MORTGAGE PROFESSIONAL
CONTACT ME

Understanding Payment Frequency

By Diane Gogar • 08 May, 2024
You’ve most likely heard that there are two certainties in life; death and taxes. Well, as it relates to your mortgage, the single certainty is that you will pay back what you borrow, plus interest. With that said, the frequency of how often you make payments to the lender is somewhat up to you! The following looks at the different types of payment frequencies and how they impact your mortgage. Here are the six payment frequency types Monthly payments – 12 payments per year Semi-Monthly payments – 24 payments per year Bi-weekly payments – 26 payments per year Weekly payments – 52 payments per year Accelerated bi-weekly payments – 26 payments per year Accelerated weekly payments – 52 payments per year Options one through four are straightforward and designed to match your payment frequency with your employer. So if you get paid monthly, it makes sense to arrange your mortgage payments to come out a few days after payday. If you get paid every second Friday, it might make sense to have your mortgage payments match your payday. However, options five and six have that word accelerated before the payment frequency. Accelerated bi-weekly and accelerated weekly payments accelerate how fast you pay down your mortgage. Choosing the accelerated option allows you to lower your overall cost of borrowing on autopilot. Here’s how it works. With the accelerated bi-weekly payment frequency, you make 26 payments in the year. Instead of dividing the total annual payment by 26 payments, you divide the total yearly payment by 24 payments as if you set the payments as semi-monthly. Then you make 26 payments on the bi-weekly frequency at the higher amount. So let’s use a $1000 payment as the example: Monthly payments formula: $1000/1 with 12 payments per year. A payment of $1000 is made once per month for a total of $12,000 paid per year. Semi-monthly formula: $1000/2 with 24 payments per year. A payment of $500 is paid twice per month for a total of $12,000 paid per year. Bi-weekly formula: $1000 x 12 / 26 with 26 payments per year. A payment of $461.54 is made every second week for a total of $12,000 paid per year. Accelerated bi-weekly formula: $1000/2 with 26 payments per year. A payment of $500 is made every second week for a total of $13,000 paid per year. You see, by making the accelerated bi-weekly payments, it’s like you end up making two extra payments each year. By making a higher payment amount, you reduce your mortgage principal, which saves interest on the entire life of your mortgage. The payments for accelerated weekly payments work the same way. It’s just that you’d be making 52 payments a year instead of 26. By choosing an accelerated option for your payment frequency, you lower the overall cost of borrowing by making small extra payments as part of your regular payment schedule. Now, exactly how much you’ll save over the life of your mortgage is hard to nail down. Calculations are hard to do because of the many variables; mortgages come with different amortization periods and terms with varying interest rates along the way. However, an accelerated bi-weekly payment schedule could reduce your amortization by up to three years if maintained throughout the life of your mortgage. If you’d like to look at some of the numbers as they relate to you and your mortgage, please don’t hesitate to connect anytime; it would be a pleasure to work with you.

Protect Yourself at Renewal

By Diane Gogar • 01 May, 2024
It’s a commonly held belief that if you’ve made your mortgage payments on time throughout the entirety of your mortgage term, that the lender is somehow obligated to renew your mortgage. The truth is, a lender is never under any obligation to renew your mortgage. When you sign a mortgage contract, the lender draws it up for a defined time, so when that term comes to an end, the lender has every right to call the loan. Now, granted, most lenders are happy to renew your mortgage, but several factors could come into play to prevent this from happening, including the following: You’ve missed mortgage payments over the term. The lender becomes aware that you’ve recently claimed bankruptcy. The lender becomes aware that you’re going through a separation or divorce. The lender becomes aware that you lost your job. Someone on the initial mortgage contract has passed away. The lender no longer likes the economic climate and/or geographic location of your property. The lender is no longer licensed to lend money in Canada. Again, while most lenders are happy to renew your mortgage at the end of the term, you need to understand that they are not under any obligation to do so. So how do you protect yourself? Well, the first plan of action is to get out in front of things. At least 120 days before your mortgage term expires, you should be speaking with an independent mortgage professional to discuss all of your options. By giving yourself this lead time and seeking professional advice, you put yourself in the best position to proactively look at all your options and decide what’s best for you. When assessing your options at the time of renewal, even if the lender offers you a mortgage renewal, staying with your current lender is just one of the options you have. Just because your current lender was the best option when you got your mortgage doesn’t mean they are still the best option this time around. The goal is to assess all your options and choose the one that lowers your overall cost of borrowing. It’s never a good idea to sign a mortgage renewal without looking at all your options. Also, dealing with an independent mortgage professional instead of directly with the lender ensures you have someone working for you, on your team, instead of seeking guidance from someone with the lender’s best interest in mind. So if you have a mortgage that’s up for renewal, whether you’re being offered a renewal or not, the best plan of action is to protect yourself by working with an independent mortgage professional. Please connect anytime; it would be a pleasure to work with you!
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