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Will the Bank of Canada cut rates next Announcement?

Jackson Middleton • March 2, 2020

Growing fallout from the coronavirus — including tanking stock markets and falling oil prices — means the Bank of Canada is increasingly likely to cut interest rates this week.

Just days ago, the market consensus was that the Bank of Canada would wait until its April meeting before lowering rates by 25 bps, in order to give the Governing Council more time to assess the situation.

But panic selling on the world’s stock markets, as well as a 25%+ drop in the price in WTI crude oil since the start of the year, means markets are nearly fully expecting the Bank of Canada to move its rate cut to its upcoming meeting this Wednesday.

Not only that, but markets are suddenly pricing in three quarter-point rate cuts by the end of the year.

Economists at RBC Economics are among those anticipating a rate cut this week.

“The plunge in global equity markets and sharp drop in commodity prices, in particular oil, are bumping up the risks that the confidence hit in financial markets will be mirrored in household and business sentiment,” said RBC’s Deputy Chief Economist, Dawn Desjardins. “The data doesn’t show this yet but with markets extrapolating what looked like a modest hit to global growth from the coronavirus into a full-fledged economic downturn, the bank is likely to want to lean against any deterioration in confidence.”

She added that the bank’s revised call for a rate cut does not remove the possibility for an additional rate cut in April.

“The Bank of Canada doesn’t want to further stoke this fire [household debt-to-income ratios reaching new highs] via rate cuts that could encourage home-buying behaviour,” added economists at TD Economics, who also expect a rate cut this week. “But the unfortunate truth is that it probably can’t do much to manage this market.”

Stephen Brown, Chief Economist at Capital Economics, added that increased confidence of price growth among homeowners may be welcomed by the BoC in this time of growing fear in equity markets.

“We think the Bank would only cut if it were convinced that the disruption caused by the virus elsewhere in the world has already been enough to seriously jeopardize domestic growth…The sharp downward moves in commodity prices are a bigger immediate risk, but volatile market moves may not be enough to persuade the Bank to cut either,” Brown wrote. “All that said, it clearly would not take much more to change the Bank’s mind. While it has been worried about the effects of looser policy on house prices, it may become more welcoming of a further boost to housing wealth if equity values continue to plummet.”

Derek Holt, head of capital markets at Scotiabank, urged the Bank to cut rates right away given the latest developments.

“The Bank of Canada needs to cut. Now. Enough dithering,” he wrote on Friday. “The greater risk to financial stability is not giving the economy a shot in the arm.”

This article is an excerpt from: " BoC Increasingly Likely to Deliver a Surprise Rate Cut This Week" written by Steve Huebl and originally published on Canadian Mortgage Trends Mach 2nd 2020.

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RRSP As A Downpayment

By DLC Canadian Mortgage Experts • December 28, 2022
Did you know there’s a program that allows you to use your RRSP to help come up with your downpayment to buy a home? It’s called the Home Buyer’s Plan (or HBP for short), and it’s made possible by the government of Canada. While the program is pretty straightforward, there are a few things you need to know. Your first home (with some exceptions) To qualify, you need to be buying your first home. However, when you look into the fine print, you find that technically, you must not have owned a home in the last four years or have lived in a house that your spouse owned in the previous four years. Another exception is for those with a disability or those helping someone with a disability. In this case, you can withdraw from an RRSP for a home purchase at any time. You have to pay back the RRSP You have 15 years to pay back the RRSP, and you start the second year after the withdrawal. While you won’t pay any tax on this particular withdrawal, it does come with some conditions. You’ll have to pay back the total amount you withdrew over 15 years. The CRA will send you an HBP Statement of Account every year to advise how much you owe the RRSP that year. Your repayments will not count as contributions as you’ve already received the tax break from those funds. Access to funds The funds you withdraw from the RRSP must have been there for at least 90 days. You can still technically withdraw the money from your RRSP and use it for your down-payment, but it won’t be tax-deductible and won’t be part of the HBP. You can access up to $35,000 individually or $70,00 per couple through the HBP. Please connect anytime if you’d like to know more about the HBP and how it could work for you as you plan your downpayment. It would be a pleasure to work with you.

Is There A Difference Between A Deposit And Downpayment

By DLC Canadian Mortgage Experts • December 21, 2022
If you’re new to the home buying process, it’s easy to get confused by some of the terms used. The purpose of this article is to clear up any confusion between the deposit and downpayment. What is a deposit? The deposit is the money included with a purchase contract as a sign of good faith when you offer to purchase a property. It’s the “consideration” that helps make up the contract and binds you to the agreement. Typically, you include a certified cheque or a bank draft that your real estate brokerage holds while negotiations are finalized when you offer to purchase a property. If your offer is accepted, your deposit is held in your Realtor’s trust account. If your offer is accepted and you commit to buying the property, your deposit is transferred to the lawyer’s trust account and included in your downpayment. If you aren’t able to reach an agreement, the deposit is refunded to you. However, if you commit to buying the property and don’t complete the transaction, your deposit could be forfeit to the seller. Your deposit goes ahead of the downpayment but makes up part of the downpayment. The amount you put forward as a deposit when negotiating the terms of a purchase contract is arbitrary, meaning there is no predefined or standard amount. Instead, it’s best to discuss this with your real estate professional as your deposit can be a negotiating factor in and of itself. A larger deposit may give you a better chance of having your offer accepted in a competitive situation. It also puts you on the hook for more if something changes down the line and you cannot complete the purchase. What is a downpayment? Your downpayment refers to the initial payment you make when buying a property through mortgage financing. In Canada, the minimum downpayment amount is 5%, as lenders can only lend up to 95% of the property’s value. Securing mortgage financing with anything less than 20% down is only made possible through mortgage default insurance. You can source your downpayment from your resources, the sale of a property, an RRSP, a gift from a family member, or borrowed funds. Example scenario Let’s say that you are looking to purchase a property worth $400k. You’re planning on making a downpayment of 10% or $40k. When you make the initial offer to buy the property, you put forward $10k as a deposit your real estate brokerage holds in their trust account. If everything checks out with the home inspection and you’re satisfied with financing, you can remove all conditions. Your $10k deposit is transferred to the lawyer’s trust account, where will add the remaining $30k for the downpayment. With your $40k downpayment made, once you sign the mortgage documents and cover the legal and closing costs, the lender will forward the remaining 90% in the form of a mortgage registered to your title, and you have officially purchased the property! If you have any questions about the difference between the deposit and the downpayment or any other mortgage terms, please connect anytime. It would be a pleasure to work with you.
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