As we stand subjected to yet another 0.50% rate increase from the Bank of Canada today (https://www.bankofcanada.ca/2022/10/fad-press-release-2022-10-26/), for many of us, the weight on our chests is growing. Although the 0.50% increase is slightly less than some experts were predicting, it still hurts just the same. It’s a difficult time for everyone, to say the least, especially for homeowners who have adjustable or variable mortgages, or for anyone with a mortgage who is getting nervous about their upcoming mortgage renewal.
For those of us who work in the mortgage industry, who can see the struggle that borrowers face with these rate increases, our hearts feel immensely heavy right now. Trust me when I tell you that we lose sleep, spend day & night thinking of each and every one of you, and remember every conversation that we have had together over the past couple of years. We hear you and feel you when you say that you are struggling with these rate increases. We lay awake at night and start writing blog posts, like this one, at 3 am.
We know that these high rates really suck for all borrowers (there’s really no other way to put it) and that this is not easy.
Although it doesn’t alleviate the crushing weight, we try to remember that we gave the best information that we felt we could give at that moment, so that our clients could make informed decisions. This information was based on what we knew at that time, based on historical data, based on what has been best for Canadian borrowers for the past few decades, and based on knowledge from exploring historical trends over the past 80 years.
We remember believing in the data so much that we, too, took adjustable and variable rate mortgages for our homes. If you ask any Mortgage Broker in the industry, you will find that the vast majority have variable or adjustable rate mortgages of their own.
We remember helping you choose your types of mortgages based on your financial goals, your future outlook, which lender you could qualify with (remember how crazy the market was, and how badly you wanted that home?), how quickly you needed that turnaround (remember the short subject-removal dates, the quick sales needed, and the non-subject offers?), the amount of debt that needed consolidating (remember the yearning to increase cash flow and consolidate consumer debt while rates were low?), and the type of flexibility desired (remember the huge, heartbreaking penalties we saw from fixed rate mortgage clients?).
We hope you remember, as well.
We remember all these things…but it still hurts to see you hurt, and we so desperately wish that we could do something to take the pain and struggle away.
---- But maybe, just maybe, the way that we can help you breathe a little easier is to help you remember, too…
-Do you remember the pandemic panic in 2020 (how can we forget?), when the world turned upside down, everything felt so uncertain, and, in response to this, the Bank of Canada spent most of 2020 and 2021 assuring us all that rate increases were off the table until well into 2023?
(In his press conference on October 2020, a reporter asked the Governor of the Bank of Canada, Tiff Macklem, if they were purposely encouraging Canadians to borrow to buy assets, to which he responded: “What we’re saying is that we are going to get through this but it’s going to be a long slog. We’re telling Canadians, and our forward guidance has been very clear, that we are going to hold our policy interest rate at the effective lower bound until slack is absorbed so that we can sustainably achieve our 2% inflation target, and we’ve indicated that’s not going to happen until some time into 2023. What does that mean? Yes, that means if you are a household considering making a big purchase, if you’re a business considering investing, you can be confident that interest rates will be low for a long time.”)
…And do you remember when, in 2022, the Bank of Canada changed their mind and started raising rates?
-Do you remember last year and the year before, when we thought that the sky-rocketing, out-of-control real estate market would never stop? When potential home buyers were frantically throwing non-subject offers into a hat, feeling hopeless that their offer would actually be considered?
…And do you remember how that all turned around and became a buyers’ market within just a few weeks in 2022?
-Do you remember the first time that we saw 5-year fixed rates of 1.99% in November of 2012, and every expert said that we would never, ever see them again in our lifetime?
…And do you remember the next time we saw them in June of 2020?
…And do you remember thinking in 2021 and 2022 that the 1.99% mortgage rate was a high rate, compared to the lower rate that someone else was getting?
(I do. I remember losing sleep about a client who had chosen to take a 5-year fixed rate of 1.99%, thinking that if they had not done so, they could have benefited from the low sub-2% variable rate mortgages. I remember clients who were very upset that they locked into fixed rates of 2-3%, who could not break them without huge penalties, while everyone else had the luxury of paying under 2% for their variable rates.)
-Do you remember that there was an average of a 2% difference between variable and fixed rates throughout 2021 and the beginning of 2022?
(This was one of the main reasons why over 50% of Canadians took variable rate mortgages over the past 1-2 years.)
…And do you remember in the past few weeks when lenders started to raise their variable rates and decrease their fixed rates, so that the difference between the two is now less than 0.50%?
-Do you remember the last recession, where fixed rates and prime rates rose to 6-7% in 2007-2008?
…And do you remember that they steadily declined for the next decade?
-Do you remember that Prime Rate started to rise in 2010, and many thought it would continue it’s rise?
…And do you remember that Prime Rate didn’t rise above 3% for nearly 8 years after that?
(I do. I locked into a restrictive 5-year fixed rate mortgage at 4.79% in 2010 and, in the years following, all fixed rates dropped, and most variable rates remained under or around 2% for the whole term, and beyond.)
-Do you remember when inflation rose to 5.63% in 1991?
…And do you remember when it fell to 1.49% in 1992, and then further down to 0.17% in 1994?
- Do you remember the 80s (I sure don’t…I was just a child. But for those of you who do…) and how, in August of 1981, Prime Rate peaked at 22.75%?
…And do you remember how in April of 1983, it had dropped by more than half (11.75%)?
…And do you remember that it rose again? And then it fell again. And then it rose again. And then it fell again.
These are just examples of a few moments in time, but the point is this:
Every difficult moment feels like it will never end. And then it does.
The mortgage market, the economy, and life are unpredictable. Economists and experts can try their hardest to predict what will happen next, but no one knows the future. If the past few years of chaos have taught us anything, it’s that nothing is certain. There are ups and there are downs. Just when you think that something will never stop, it does, and it turns right around.
And, so, the rate outlook has changed once more…
A couple weeks ago, many economists thought the Bank of Canada may raise their overnight rate by 0.75% to 1.0%. Today, they raised it by 0.50%.
The Bank of Canada again used hawkish language to say they expect rates to rise further to try to decrease demand in the economy and bring down inflation.
The prospect of interest rate decreases suddenly seem slightly further from our reach now, so we are left with the tasks of hanging tight, buckling down our expenses, stopping frivolous spending, implementing ways to increase our income, and tightening our budgets wherever we can.
I know it will not be easy, but I believe that you can make it through this.
You can do it.
I believe you can, because you are strong and resourceful.
I believe you can because you have endured and overcome tough times before.
I believe you can because we "stress tested" you when you qualified for your mortgage, using these rates this high, and using less than 44% of your household income.
And we must try to remember that nothing lasts forever.
We remember, and we hope.
I truly wish I had all the answers for all of you, but I would be lying if I said that I do. I cannot predict how high rates will get and for how long, if you should choose variable or fixed, if you should lock in now, or whether, if you do lock in, if you will regret the decision in a few years or relish in it.
What I can do is to continue to arm you with what we know now, to hopefully help you make a decision for your future.
My family and I will be continuing to ride the adjustable and variable wave, despite how gnarly it is, because I have faith that this too shall pass.
I know that you have to do whatever you feel is best for your family, too.
If you are unsure about what to do, I encourage you to please reach out to me or to your Mortgage Broker to discuss your options. Again, we don't have all the answers, but I am always happy to help where I can.
Sending love, light, and hope to all of you through these tough times. <3
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