June 6, 2024 • 5 mins
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EPISODE DESCRIPTION
In this episode, Tom breaks down everything you need to know about the Bank of Canada's rate decision on June 5th, 2024.
There's a lot of misconception out there on how the rate cut impacts borrowers, and overall market expectations. Tom simplifies it all!
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:08):
last cut from the Bank of Canada.
It's been a while.
And to be honest, like it kind ofseems like forever ago.
And it also seems like justyesterday COVID was here around
the corner.
And that's the last time we've
seen that cut was right before thepandemic.
So here we are today, four yearslater, interest rates much, much
higher than what they were.
And in this video, I'm going to
(00:29):
break down exactly what you needto know in terms of what does this
cut mean from a variable rateperspective, fixed rate, I'm going
to talk about the market.
And essentially, I'm going to
simplify everything becausethere's a lot of confusion out
there.
There's a lot of skepticism, a lot
of people that are predictingcertain things that are going to
happen in the market.
I'm not here to do that.
I'm here to just really boilthings down and simplify things.
So if you have a fixed ratemortgage, this doesn't affect you.
(00:51):
If you are pre-approved or you'reapproved for a mortgage and you
have a fixed rate, this does notaffect you.
The Bank of Canada, whenever theymake an announcement, whether
they're increasing, decreasing, orkeeping rates the same, overnight
lending rate that is, then thatonly affects variable rates, home
equity line credits, and creditcard interest.
It doesn't affect fixed rates.
Fixed rates are tied to the bond
market itself.
So whenever the bond yields go up
(01:14):
or down, it directly ties to thosefixed rates, which is what causes
them to go up and down.
They're typically more volatile
and they happen on a, can be dayto day basis versus the Bank of
Canada.
They only have eight announcements
per year that will have eitherincrease, decrease, or they'll
stay the same.
So that's really the difference
between the fixed and thevariable.
Now the variable, we can breakthat down into two different types
(01:36):
of variable.
We have your adjustable rate
mortgage and your variable ratemortgage.
These are both variable mortgages.
Every lender is different.
So one lender might have avariable rate mortgage, a VRM.
One might have an ARM.
The difference between the two is
the ARM, the payment that is,fluctuates as the rate increases
or decreases.
Now the VRM, the rate does
increase or decrease, which isdirectly tied to the Bank of
(01:57):
Canada, but the payment stays thesame.
It's a static payment.
So it's really important that you
know which one you have, dependingon the lender you have.
And I would say on average, it'saround half of the major banks
have the VRM.
So if that's you, reach out if you
have any questions on the staticpayment and how that works.
But again, the rate has decreasedfor you the next month, whether
(02:19):
you have the ARM or the VRM, butthe payment is going to either
stay the same or fluctuatedepending on which one you have
there.
So let's say you have ARM and
you're wondering, okay, like whatis my payment difference going to
be now?So on average, it's $15 per 100K
of mortgage.
That's gonna be a decrease for
Let's you.
say you have a 500K mortgage, that
would be15 per 100K of mortgage.
That's going to be a decrease for
(02:40):
you.
Let's say you have a 500K
mortgage.
That would be a $76 a month
decrease.
And that's not going to show until
the following month.
So, I mean, that's pretty decent,
right?Like if you have a 500K mortgage,
it's almost $100.
You're going to see right off the
bat next month.
You can only imagine if we have
another, say, 0.25 next month orSeptember, then these are really
going to compound and your ratewill decrease a decent amount.
So we'll see what happens in thefuture, which I'm going to talk
about in a second here.
(03:01):
And the last point I'll make here
is the home equity line of credit.
This is actually going to have an
impact right away.
You're going to save on interest
right away.
It's not going to come into effect
the following month because theinterest is calculated on a daily
basis versus monthly there.
So if you have any questions about
that, you can always reach backout to me or book a call and we
can chat further.
So a couple of closing thoughts
here as I round this out.
So I see just about everyone in my
(03:23):
industry and the real estateindustry speculating we're going
to see a really big pickup in themarket and it's going to heat up.
I actually don't think that'sgoing to happen.
I think we're maybe going to see abit of an uptick right but I don't
away, think it's going to happen Ithink we're maybe going to see a
bit of an uptick right away but Idon't think it's going to be
drastic again I don't have acrystal ball nobody does but I
(03:44):
honestly think that people are abit smarter than this I think
they're really going to wait untilthey see maybe the next decrease
or a couple more I don'tnecessarily think they're going to
jump in right after seeing thefirst decrease so I could be wrong
about that I would love to hearyour thoughts too what do I I
think about July?July is the next rate
announcement.
So I think if I were the Bank of
Canada, I would hold steady onJuly to see the impact of the rate
decrease this month.
I think it would be too early for
them to do back-to-back rate cuts.
(04:04):
That's my thoughts.
We'll see what happens.
If I were them, I would wait until
maybe September to do the nextdecrease or even maybe a bit
further out depending on whatthings look like from an inflation
perspective and everything elsethat they track as well so the
remaining 2024 announcements wehave July September October and
December so we have four moreannouncements for the year and if
we were to see a cut on everysingle announcement there assuming
(04:25):
that the Bank of Canada will onlydo the minimum of 0.25% cuts, we
would see another 1% reduction bythe end of the year.
That's assuming that every singleannouncement is going to result in
a rate reduction.
So it's far less than what we were
going to be suspecting this year,but any cut helps.
Obviously, it's going to provide abit more relief to people that
have a variable rate mortgage.
So I think it's great news.
(04:47):
I would love to hear your thoughtsas well.
Cheers.
last cut from the Bank of Canada.
It's been a while.
And to be honest, like it kind ofseems like forever ago.
And it also seems like justyesterday COVID was here around
the corner.
And that's the last time we've
seen that cut was right before thepandemic.
So here we are today, four yearslater, interest rates much, much
higher than what they were.
And in this video, I'm going to
(00:29):
break down exactly what you needto know in terms of what does this
cut mean from a variable rateperspective, fixed rate, I'm going
to talk about the market.
And essentially, I'm going to
simplify everything becausethere's a lot of confusion out
there.
There's a lot of skepticism, a lot
of people that are predictingcertain things that are going to
happen in the market.
I'm not here to do that.
I'm here to just really boilthings down and simplify things.
So if you have a fixed ratemortgage, this doesn't affect you.
(00:51):
If you are pre-approved or you'reapproved for a mortgage and you
have a fixed rate, this does notaffect you.
The Bank of Canada, whenever theymake an announcement, whether
they're increasing, decreasing, orkeeping rates the same, overnight
lending rate that is, then thatonly affects variable rates, home
equity line credits, and creditcard interest.
It doesn't affect fixed rates.
Fixed rates are tied to the bond
market itself.
So whenever the bond yields go up
(01:14):
or down, it directly ties to thosefixed rates, which is what causes
them to go up and down.
They're typically more volatile
and they happen on a, can be dayto day basis versus the Bank of
Canada.
They only have eight announcements
per year that will have eitherincrease, decrease, or they'll
stay the same.
So that's really the difference
between the fixed and thevariable.
Now the variable, we can breakthat down into two different types
(01:36):
of variable.
We have your adjustable rate
mortgage and your variable ratemortgage.
These are both variable mortgages.
Every lender is different.
So one lender might have avariable rate mortgage, a VRM.
One might have an ARM.
The difference between the two is
the ARM, the payment that is,fluctuates as the rate increases
or decreases.
Now the VRM, the rate does
increase or decrease, which isdirectly tied to the Bank of
(01:57):
Canada, but the payment stays thesame.
It's a static payment.
So it's really important that you
know which one you have, dependingon the lender you have.
And I would say on average, it'saround half of the major banks
have the VRM.
So if that's you, reach out if you
have any questions on the staticpayment and how that works.
But again, the rate has decreasedfor you the next month, whether
(02:19):
you have the ARM or the VRM, butthe payment is going to either
stay the same or fluctuatedepending on which one you have
there.
So let's say you have ARM and
you're wondering, okay, like whatis my payment difference going to
be now?So on average, it's $15 per 100K
of mortgage.
That's gonna be a decrease for
Let's you.
say you have a 500K mortgage, that
would be15 per 100K of mortgage.
That's going to be a decrease for
(02:40):
you.
Let's say you have a 500K
mortgage.
That would be a $76 a month
decrease.
And that's not going to show until
the following month.
So, I mean, that's pretty decent,
right?Like if you have a 500K mortgage,
it's almost $100.
You're going to see right off the
bat next month.
You can only imagine if we have
another, say, 0.25 next month orSeptember, then these are really
going to compound and your ratewill decrease a decent amount.
So we'll see what happens in thefuture, which I'm going to talk
about in a second here.
(03:01):
And the last point I'll make here
is the home equity line of credit.
This is actually going to have an
impact right away.
You're going to save on interest
right away.
It's not going to come into effect
the following month because theinterest is calculated on a daily
basis versus monthly there.
So if you have any questions about
that, you can always reach backout to me or book a call and we
can chat further.
So a couple of closing thoughts
here as I round this out.
So I see just about everyone in my
(03:23):
industry and the real estateindustry speculating we're going
to see a really big pickup in themarket and it's going to heat up.
I actually don't think that'sgoing to happen.
I think we're maybe going to see abit of an uptick right but I don't
away, think it's going to happen Ithink we're maybe going to see a
bit of an uptick right away but Idon't think it's going to be
drastic again I don't have acrystal ball nobody does but I
(03:44):
honestly think that people are abit smarter than this I think
they're really going to wait untilthey see maybe the next decrease
or a couple more I don'tnecessarily think they're going to
jump in right after seeing thefirst decrease so I could be wrong
about that I would love to hearyour thoughts too what do I I
think about July?July is the next rate
announcement.
So I think if I were the Bank of
Canada, I would hold steady onJuly to see the impact of the rate
decrease this month.
I think it would be too early for
them to do back-to-back rate cuts.
(04:04):
That's my thoughts.
We'll see what happens.
If I were them, I would wait until
maybe September to do the nextdecrease or even maybe a bit
further out depending on whatthings look like from an inflation
perspective and everything elsethat they track as well so the
remaining 2024 announcements wehave July September October and
December so we have four moreannouncements for the year and if
we were to see a cut on everysingle announcement there assuming
(04:25):
that the Bank of Canada will onlydo the minimum of 0.25% cuts, we
would see another 1% reduction bythe end of the year.
That's assuming that every singleannouncement is going to result in
a rate reduction.
So it's far less than what we were
going to be suspecting this year,but any cut helps.
Obviously, it's going to provide abit more relief to people that
have a variable rate mortgage.
So I think it's great news.
(04:47):
I would love to hear your thoughtsas well.
Cheers.
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