July 11, 2024 • 10 mins
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EPISODE DESCRIPTION
In this episode, Tom & Brandon share today's rates, look at how the US is affecting the rates, and putting it together so it makes sense to the average Canadian.
What was discussed: → The differences between fixed and variable rates, the bond market, and the overnight prime rate. → The impact of inflation, unemployment rate, and the upcoming US election. → 5 year term averages for different types of mortgages, insured mortgages, uninsured mortgages, fixed, and variable.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Canadians have been waiting fouryears for this day, and that day
(00:03):
is where fixed and variable ratesboth decrease at the same time.
It marks the start of ratesofficially declining, but, but, I
would hesitate to say that we'rein the clear as of right now due
to the fact that we had recentnews on inflation and not really
the best of news.
In this this video, we'll be
showcasing today's rates, touchingon what's going on south of the
border in the States, and puttingit all together so it makes sense.
(00:24):
It's not going to be a smoothride, but we're going to be here
to to guide you through it.
That's right.
And if you're new to the show, myname is Tom Moffitt, and this is
Brandon Love, my good buddy andbusiness partner.
And we are both mortgage brokershere in Canada, helping simplify
real estate and mortgages.
All right, so let's dive into it.
So before we go into anything, Ijust want to explain real quick
what the difference is betweenfixed and variable and what
(00:44):
they're both hinged on.
So whenever you see the headlines
in regards to the Bank of Canadaand rates, typically we're talking
about variable rates because whenit comes to the Bank of Canada and
prime rate, so the rate that theyset, whether they decrease,
increase or keep rates the same,that has a direct impact on
variable rates.
And so when it comes to fixed
(01:05):
rates, those are actually hingedon the bond market, which we're
going to touch on in this video aswell, because it's important to
know that we've actually seen alot more volatility with the fixed
rates.
And we're a lot lower with the
fixed rates versus where variablerates are at today.
Exactly.
And for a long a long time, it's
been very stable in the variablesetting.
We just had our first rate drop inCanada in June, hopefully see
another one in July.
(01:25):
But the bond market has fluctuated
wildly.
And this is based to any new
cycles, for instance, war withUkraine and Russia, US
presidential debates, which we'lltouch on in a moment, and other
factors like that that all impactthe confidence people have in the
economy as a whole.
So continuing on that thread, the
bond market will react verysignificantly to the US
(01:45):
presidential debate.
That's because Mr. Market as a
whole prefers to have a presidentlike Trump in office instead of
President Biden.
So in that debate, whether you
watched it or just read the newsheadlines, it was pretty clear
that Trump was a winner there.
Even Biden admitted that he had
messed up in the debate.
(02:06):
And there's a lot of talk about
whether he should step out of therace completely.
Now, the extent of my US politicalknowledge goes back to first year
university at McGill.
And I've spent the time since then
learning more about business thanU.S. politics because that's where
my interest lies.
But I do know that this is a
significant momentum swing inPresident Trump's campaign.
Another additional win there camewith the U.S.
(02:27):
Supreme Court decision.
What they ruled is that he can't
be prosecuted for acts within hisconstitutional powers as
president.
I'm sure that's open to broad
interpretation across the board,whether you're a liberal,
conservative, Democrat,Republican, whatever your
worldview is, you probably viewthings as within his
constitutional powers or notwithin it.
That's not our place to decidethat.
(02:48):
That's up to the lawyers andeveryone else who's in that.
But it is a big momentum shift forthe campaign and the market
reacted favorably to that.
Yeah.
And as a result, we actually saw adecrease in the bond yield, which
again, directly impacted the fixedrates.
So we saw a bit of a correctionthere, or I should say a decrease
in the fixed rates.
But on the other side of things,
(03:10):
when it comes to the variable ratein the Bank of Canada, not so
great of news as we saw theinflation numbers come in at 2.9%
for May's inflation number.
And that was an increase from 2.7%
in April.
So not the greatest news.
The consensus was coming in at2.6%.
So obviously not there.
That was mostly due to, I believe,
(03:31):
Brandon, correct me if I'm wrong,plane tickets, cell phone plans.
It's usually like plane tickets,phone plans, mortgages,
ironically, and rent.
So cost of living is a huge one,
which like it's a double-edgedsword because the rates are high,
which increases people's cost ofliving because landlords charge
more rent, mortgage payments arehigher.
So obviously that adds toinflation, but then those
(03:51):
inflation numbers stop them frombeing able to reduce the rates.
Yeah.
One thing I do want to point out
tickets, phone I do want to pointout though, that a lot of people
have a big misconception on isthat they thought due to the Bank
of Canada decreasing rates, thevariable, the prime rate by 0.25
in June, that was the result ofwhy inflation increased, but the
inflation numbers are always amonth behind.
So that was May's numbers.
So it had nothing to do with the
Bank of Canada decreasing primerate.
Yeah, and the Bank of Canada, aswe saw, is not going to be quick
(04:14):
to overreact anymore.
I think they learned an important
lesson in COVID where theyrealized they went too far too
quick.
And they put in some of these
emergency measures that then justwas gasoline on the fire.
So they're going to be verycautious.
They're going to watch severalcycles before you're going to see
any major rate changes.
So that's a reason why I
personally think it's going to goslower than a lot of people are
(04:38):
hoping for, unfortunately.
Yeah, I agree.
Unfortunately, like you said.
With that being said, there's
another indicator that alsosuggests that rates might come
down earlier.
So you might get the consensus by
now that there's indicatorspushing things up, there's
indicators pushing things down.
So it's really up to the Bank of
Canada to find that happy medium.
We always say in our industry,
there's no crystal ball, but welook for indicators to try to
(04:58):
determine where the puck might begoing.
So one of those indicators isunemployment numbers.
And you might think, okay, ifeveryone's employed, that's really
good for the economy.
And that's a really good and rates
would come down.
It's actually the opposite case.
So high unemployment numberscorrelates to lowering rates
because businesses are paying lessinterest.
They have more money to add totheir numbers.
So that's one of those weirdindicators where I would think
(05:21):
it'd be the opposite way in mylike logical brain.
But reality is that higherunemployment leads to lower rates.
So previous unemployment was at6.2%.
This crept up to 6.4%.
So not a huge jump there, but it's
trending in a direction thatsupports a rate decrease.
All right.
So now for the fun stuff, we're
(05:41):
going to look through the interestrates today in July of 2024.
So keep in mind, these are thefive-year term averages on the A
side, so not the B side.
So there's three different
brackets.
We have insured, insurable, and
uninsured.
So insured is simply less than 20%
down.
You can think of it as when you
get mortgage insurance, CMHC,that's insured mortgages are
(06:02):
always going to have the lowestrate when it comes to insured.
And right now today we have fixedrates at 4.89%.
So roughly a 10 basis pointsdifference from month over month.
The variable rate is coming in at6%, so 0.95% discount.
That's the insured rates.
We have our insurable.
So anything under a milliondollars for a purchase price, down
payment between 20% to 34%.
General rule of thumb, the higher
(06:24):
the down payment you have, thelower the rate's going to be.
So this one's going to come in ata range.
We have 4.99% to 5.24%, roughly a0.05% change from the previous
month.
We also have our variable rates at
6.3% to 6.15%.
That's on average a 0.1% discount
from last month.
And we have our uninsured bracket.
(06:44):
So this is anything over a milliondollars, or if you're going for
that extended amortization to 30years, you're going to fall into
this bracket.
It's not going to be covered by
the insurers.
So you're going to typically have
a higher rate.
Now with fixed rates, we're
sitting at around 5.29%.
So 10 basis points difference,
variable rate 6.55%, 0.25%difference there.
So a pretty big jump there.
(07:06):
Keep in mind, these are the posted
rates as well on the uninsuredside.
Sometimes we get it a lot lowerthan that.
And these are the averages too.
So for all those of you thinking,
well, I've seen lower, youprobably have depends on where you
get in your mortgage.
But these are the averages.
(07:27):
Exactly.
It's just It's just to give you a
good idea of where the overallmarket is at.
There's rate exceptions, there'sthings we ask for those little
tricks and strategies we use asbrokers to help you get overall
lower rates.
But that gives you a great idea of
how much things have changed.
The key thing to really recognize
there is that fixed rates arealready significantly lower than
(07:47):
the variable rates.
So those of you waiting for a
massive drop in fixed pricing arenot going to see it.
Yeah, that's bang on.
I think a lot of people don't
really understand that it'salready priced.
So rates have actually fallenquite a bit on the fixed rate side
of things.
And I don't really see it.
I mean, looking at those ratesnow, we're high fours.
Maybe we end up being mid fours,low fours in the next couple of
(08:08):
years.
So we're not going to see a huge
difference there.
I mean, obviously we don't have a
crystal ball.
We could be wrong there.
But like we said, the bond market,the fixed rates are already
priced, assuming that we're goingto see more drops from the Bank of
Canada.
So that's why we have a much lower
rate on the fixed rate side ofthings.
(08:28):
Exactly.
The only way you would see massive
drops there would be some sort ofglobal event.
And I don't know about you, but Iwould rather pay something in the
4% range than be a prisoner in myown home for two years.
Dang on.
So the next Bank of Canada
announcement is July 24th.
A lot of people are hoping for
another rate reduction here.
I don't think it's going to be a
big one if there is one.
(08:49):
The reason for this is we being
the Bank of Canada really need towatch what goes on in the US
because if the US doesn't drop andCanada continues to drop, it
weakens the Canadian dollar, whichthen weakens the Canadian economy
as a whole.
So that's something they're going
to be more cautious about.
A lot of people described the size
of the June rate cut as bringing abutter knife to a gunfight.
Great analogy there, but reallyit's that they don't want to do
(09:11):
anything that swings the pendulumtoo far in the other direction.
So they're being overly cautious.
I wouldn't expect anything
dramatic, but we could besurprised.
If you want to go even deeper,book a call with myself and Tom,
and we will walk you through thefiner details.
Canadians have been waiting fouryears for this day, and that day
(00:03):
is where fixed and variable ratesboth decrease at the same time.
It marks the start of ratesofficially declining, but, but, I
would hesitate to say that we'rein the clear as of right now due
to the fact that we had recentnews on inflation and not really
the best of news.
In this this video, we'll be
showcasing today's rates, touchingon what's going on south of the
border in the States, and puttingit all together so it makes sense.
(00:24):
It's not going to be a smoothride, but we're going to be here
to to guide you through it.
That's right.
And if you're new to the show, myname is Tom Moffitt, and this is
Brandon Love, my good buddy andbusiness partner.
And we are both mortgage brokershere in Canada, helping simplify
real estate and mortgages.
All right, so let's dive into it.
So before we go into anything, Ijust want to explain real quick
what the difference is betweenfixed and variable and what
(00:44):
they're both hinged on.
So whenever you see the headlines
in regards to the Bank of Canadaand rates, typically we're talking
about variable rates because whenit comes to the Bank of Canada and
prime rate, so the rate that theyset, whether they decrease,
increase or keep rates the same,that has a direct impact on
variable rates.
And so when it comes to fixed
(01:05):
rates, those are actually hingedon the bond market, which we're
going to touch on in this video aswell, because it's important to
know that we've actually seen alot more volatility with the fixed
rates.
And we're a lot lower with the
fixed rates versus where variablerates are at today.
Exactly.
And for a long a long time, it's
been very stable in the variablesetting.
We just had our first rate drop inCanada in June, hopefully see
another one in July.
(01:25):
But the bond market has fluctuated
wildly.
And this is based to any new
cycles, for instance, war withUkraine and Russia, US
presidential debates, which we'lltouch on in a moment, and other
factors like that that all impactthe confidence people have in the
economy as a whole.
So continuing on that thread, the
bond market will react verysignificantly to the US
(01:45):
presidential debate.
That's because Mr. Market as a
whole prefers to have a presidentlike Trump in office instead of
President Biden.
So in that debate, whether you
watched it or just read the newsheadlines, it was pretty clear
that Trump was a winner there.
Even Biden admitted that he had
messed up in the debate.
(02:06):
And there's a lot of talk about
whether he should step out of therace completely.
Now, the extent of my US politicalknowledge goes back to first year
university at McGill.
And I've spent the time since then
learning more about business thanU.S. politics because that's where
my interest lies.
But I do know that this is a
significant momentum swing inPresident Trump's campaign.
Another additional win there camewith the U.S.
(02:27):
Supreme Court decision.
What they ruled is that he can't
be prosecuted for acts within hisconstitutional powers as
president.
I'm sure that's open to broad
interpretation across the board,whether you're a liberal,
conservative, Democrat,Republican, whatever your
worldview is, you probably viewthings as within his
constitutional powers or notwithin it.
That's not our place to decidethat.
(02:48):
That's up to the lawyers andeveryone else who's in that.
But it is a big momentum shift forthe campaign and the market
reacted favorably to that.
Yeah.
And as a result, we actually saw adecrease in the bond yield, which
again, directly impacted the fixedrates.
So we saw a bit of a correctionthere, or I should say a decrease
in the fixed rates.
But on the other side of things,
(03:10):
when it comes to the variable ratein the Bank of Canada, not so
great of news as we saw theinflation numbers come in at 2.9%
for May's inflation number.
And that was an increase from 2.7%
in April.
So not the greatest news.
The consensus was coming in at2.6%.
So obviously not there.
That was mostly due to, I believe,
(03:31):
Brandon, correct me if I'm wrong,plane tickets, cell phone plans.
It's usually like plane tickets,phone plans, mortgages,
ironically, and rent.
So cost of living is a huge one,
which like it's a double-edgedsword because the rates are high,
which increases people's cost ofliving because landlords charge
more rent, mortgage payments arehigher.
So obviously that adds toinflation, but then those
(03:51):
inflation numbers stop them frombeing able to reduce the rates.
Yeah.
One thing I do want to point out
tickets, phone I do want to pointout though, that a lot of people
have a big misconception on isthat they thought due to the Bank
of Canada decreasing rates, thevariable, the prime rate by 0.25
in June, that was the result ofwhy inflation increased, but the
inflation numbers are always amonth behind.
So that was May's numbers.
So it had nothing to do with the
Bank of Canada decreasing primerate.
Yeah, and the Bank of Canada, aswe saw, is not going to be quick
(04:14):
to overreact anymore.
I think they learned an important
lesson in COVID where theyrealized they went too far too
quick.
And they put in some of these
emergency measures that then justwas gasoline on the fire.
So they're going to be verycautious.
They're going to watch severalcycles before you're going to see
any major rate changes.
So that's a reason why I
personally think it's going to goslower than a lot of people are
(04:38):
hoping for, unfortunately.
Yeah, I agree.
Unfortunately, like you said.
With that being said, there's
another indicator that alsosuggests that rates might come
down earlier.
So you might get the consensus by
now that there's indicatorspushing things up, there's
indicators pushing things down.
So it's really up to the Bank of
Canada to find that happy medium.
We always say in our industry,
there's no crystal ball, but welook for indicators to try to
(04:58):
determine where the puck might begoing.
So one of those indicators isunemployment numbers.
And you might think, okay, ifeveryone's employed, that's really
good for the economy.
And that's a really good and rates
would come down.
It's actually the opposite case.
So high unemployment numberscorrelates to lowering rates
because businesses are paying lessinterest.
They have more money to add totheir numbers.
So that's one of those weirdindicators where I would think
(05:21):
it'd be the opposite way in mylike logical brain.
But reality is that higherunemployment leads to lower rates.
So previous unemployment was at6.2%.
This crept up to 6.4%.
So not a huge jump there, but it's
trending in a direction thatsupports a rate decrease.
All right.
So now for the fun stuff, we're
(05:41):
going to look through the interestrates today in July of 2024.
So keep in mind, these are thefive-year term averages on the A
side, so not the B side.
So there's three different
brackets.
We have insured, insurable, and
uninsured.
So insured is simply less than 20%
down.
You can think of it as when you
get mortgage insurance, CMHC,that's insured mortgages are
(06:02):
always going to have the lowestrate when it comes to insured.
And right now today we have fixedrates at 4.89%.
So roughly a 10 basis pointsdifference from month over month.
The variable rate is coming in at6%, so 0.95% discount.
That's the insured rates.
We have our insurable.
So anything under a milliondollars for a purchase price, down
payment between 20% to 34%.
General rule of thumb, the higher
(06:24):
the down payment you have, thelower the rate's going to be.
So this one's going to come in ata range.
We have 4.99% to 5.24%, roughly a0.05% change from the previous
month.
We also have our variable rates at
6.3% to 6.15%.
That's on average a 0.1% discount
from last month.
And we have our uninsured bracket.
(06:44):
So this is anything over a milliondollars, or if you're going for
that extended amortization to 30years, you're going to fall into
this bracket.
It's not going to be covered by
the insurers.
So you're going to typically have
a higher rate.
Now with fixed rates, we're
sitting at around 5.29%.
So 10 basis points difference,
variable rate 6.55%, 0.25%difference there.
So a pretty big jump there.
(07:06):
Keep in mind, these are the posted
rates as well on the uninsuredside.
Sometimes we get it a lot lowerthan that.
And these are the averages too.
So for all those of you thinking,
well, I've seen lower, youprobably have depends on where you
get in your mortgage.
But these are the averages.
(07:27):
Exactly.
It's just It's just to give you a
good idea of where the overallmarket is at.
There's rate exceptions, there'sthings we ask for those little
tricks and strategies we use asbrokers to help you get overall
lower rates.
But that gives you a great idea of
how much things have changed.
The key thing to really recognize
there is that fixed rates arealready significantly lower than
(07:47):
the variable rates.
So those of you waiting for a
massive drop in fixed pricing arenot going to see it.
Yeah, that's bang on.
I think a lot of people don't
really understand that it'salready priced.
So rates have actually fallenquite a bit on the fixed rate side
of things.
And I don't really see it.
I mean, looking at those ratesnow, we're high fours.
Maybe we end up being mid fours,low fours in the next couple of
(08:08):
years.
So we're not going to see a huge
difference there.
I mean, obviously we don't have a
crystal ball.
We could be wrong there.
But like we said, the bond market,the fixed rates are already
priced, assuming that we're goingto see more drops from the Bank of
Canada.
So that's why we have a much lower
rate on the fixed rate side ofthings.
(08:28):
Exactly.
The only way you would see massive
drops there would be some sort ofglobal event.
And I don't know about you, but Iwould rather pay something in the
4% range than be a prisoner in myown home for two years.
Dang on.
So the next Bank of Canada
announcement is July 24th.
A lot of people are hoping for
another rate reduction here.
I don't think it's going to be a
big one if there is one.
(08:49):
The reason for this is we being
the Bank of Canada really need towatch what goes on in the US
because if the US doesn't drop andCanada continues to drop, it
weakens the Canadian dollar, whichthen weakens the Canadian economy
as a whole.
So that's something they're going
to be more cautious about.
A lot of people described the size
of the June rate cut as bringing abutter knife to a gunfight.
Great analogy there, but reallyit's that they don't want to do
(09:11):
anything that swings the pendulumtoo far in the other direction.
So they're being overly cautious.
I wouldn't expect anything
dramatic, but we could besurprised.
If you want to go even deeper,book a call with myself and Tom,
and we will walk you through thefiner details.
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