It’s spooky season, but thankfully with the latest Bank of Canada rate cuts, your mortgage doesn’t have to be! Find out what the decreased interest rates mean for you, plus check out my tips to alleviate your financial stress this Fall. Scroll down for all the details!
What the Bank of Canada Rate Drops Mean for YOU!
With the Bank of Canada rate decreases throughout the summer and into September, I thought this would be a great opportunity to update you on what this means for your mortgage.
If you’re on an adjustable-rate mortgage, this will result in a slight decrease in your mortgage payments, giving you more cash flow each month!
For example, if your mortgage balance is $750,000 at the previous 6.20% interest rate your approx. compounded monthly payment was likely around $4,924. With the new rate of 5.95% your approx. compounded monthly payment on an adjustable-rate mortgage will be $4,809*. This is an estimated $115/m decrease ($15/m per 100k balance) on your payment. While it may not seem like much, it can certainly add up over time resulting in hundreds of dollars in savings.
*Rates based on example of Prime minus .50% (old prime 6.70 and new prime 6.45)
Borrowers with static-payment variable-rate mortgages will also benefit from Bank of Canada rate decreases. While the monthly payment stays the same on these types of mortgages, the lower interest rate means that more of your monthly payment will go towards paying down your mortgage principal, and less will go towards interest.
Fixed-rate mortgages do not change when the Bank of Canada increases or decreases rates. However, if you have a fixed-rate mortgage, this declining rate environment could make it easier when it comes time to renew or refinance your mortgage. Lower rates give you more borrowing power in the market – this means your money can go further!
Recent changes are also great news for first-time buyers! Not only does a lower interest rate allow for more qualification options and lower payments, but recent Government of Canada changes on mortgage rules have removed many barriers previously faced by first-time home buyers.
The Bank of Canada has two more decision dates this year in October and December. Experts anticipate the Bank of Canada will continue these quarter-point rate cuts, taking the overnight rate down to 4.0% at year-end and potentially down to 2.75% next year.
Whether you’re a current homeowner, looking to refinance or renew, or wanting to purchase, this is exciting news for Canadians across the country!
However, keep in mind rate is not the be-all-end-all of mortgages. Factors such as type of mortgage, down payment amount, payment schedule, amortization, prepayment penalties, and more will also affect your mortgage and affordability.
If you want more information about your specific mortgage and how this changing environment affects your situation, please don’t hesitate to reach out.
5 Tips to Manage Financial Stress
Despite the Bank of Canada taking steps to reduce interest rates, many Canadians still feel pressure due to the overall cost of living and inflation.
This uncertainty can be unnerving for many individuals, but don’t fret! I have some tips and suggestions to help you manage your financial stress and help you to power through these latest economic changes:
- Prioritize What You Can Control: It can be easy to feel like you have no control over your financial situation, especially with the economy in flux. However, dwelling on things you cannot fix will only cause more stress. Instead, we recommend focusing on what you CAN control within your situation. For instance, take a looking at your phone bill and services to see if you can reduce the cost (even temporarily), reviewing your grocery bill and looking for places to switch to cheaper brands or alternatives, perhaps buying in bulk. You’ll not only save money, but you will feel like you have more control and help reduce stress.
- Pay Essential Bills: If you are struggling to pay your monthly bills, prioritizing them can help you gain some control. Knowing which bills are most important to pay first can help reduce anxiety as you’re not scrambling to decide what to do. In some cases, prioritizing your bills can also help you uncover unnecessary spending and you may find something that can be eliminated entirely (even temporarily).
- Automate Payments and Savings: If you’re struggling to keep up with your bills and payments, or are finding that you keep saying you’ll save money, but aren’t, considering automation for your finances can be a step in the right direction. Ensuring that your bills are paid on time will help reduce stress and protect you from wasting money on penalties for missed payments. Alternatively, you can also set up automatic money transfers on the days you are paid to move funds into a separate, savings account before you even see it. Thereby, reducing the likelihood that you’ll skip adding to your savings that month or use that money elsewhere.
- Find Ways to Earn More Money: When cashflow is a problem and you are feeling the strain of trying to afford your current lifestyle, looking for ways to earn additional money can be a lifesaver! Consider part-time work for the weekends, consulting in your area of expertise or picking up extra hours at your current place of work. Now is also a great time to discuss with your manager if you are due for a raise.
- Talk to Your Mortgage Professional: For most people, their mortgage is their largest monthly bill. If you are feeling the financial crunch, now is a great time to talk to me about potentially changing your payment schedule or even looking for a different mortgage product with better rates (ideally if you are at the end of your term). Do not hesitate to be honest about your situation and ask what your options are.
Regardless of where you find yourself financially, there are often many solutions to help reduce and resolve your stress and ensure that you have healthy monthly cashflow.