In this week’s episode of Make Money Count, Marcus and Justin take on the question on every homeowner’s mind ahead of the Bank of Canada’s announcement tomorrow: will rates go up, and what should you do about it? Here’s how they break it down, and why they land on the same advice for every outcome.
Where Rates Stand Right Now
The Bank of Canada’s overnight rate sits at 2.25%. Bond yields have eased a little in recent days, which is keeping fixed rates reasonable for now. Justin puts the best 3-year fixed rate at just over 4.25% to just under 4.5%, and Marcus adds that there are strong variable rates available too.
What the Odds Say About a Hike
The market is pricing a 78% chance of a hike tomorrow. Earlier this month, that number was closer to 30%. The jump came after Tiff Macklem’s comments on the sidelines of the IMF, where he signalled that the inflation outlook looks quite a bit higher than it did in July. Marcus also points to Macklem’s September 21st remarks that the Bank will not be slow to respond to inflation. Expectations have come off slightly from last week’s highs, but a hike is still the most likely outcome.
Why the Experts Can’t Agree
The economists are split. David Rosenberg of Rosenberg Research argues the Bank should hold, and Marcus explains that Rosenberg believes a hike would raise the odds of a recession. Justin adds that a hike won’t lower gas prices, so it isn’t a fix for the one thing pushing inflation up.
The case for a hike is about the message it sends. Justin, who is backing a hike in their bet (begrudgingly, by his own admission), says a hike would send the message the market needs. Marcus adds that the goal is to slow spending and keep higher prices from taking hold. A Bank of Canada survey shows businesses are starting to pass higher costs on to consumers, and central bankers don’t want to mistime inflation a second time.
What a Hike Would Cost You
On a $750,000 mortgage, a 25 basis point hike adds about $100 a month. That might not sound like much, but Marcus points out that with so much debt in the system, even a small move lands harder on borrowers and on the economy.
What to Do in Each Scenario
Marcus and Justin break down what happens if the Bank holds, hikes once, or hikes and signals more to come, and their advice is the same every time.
If the Bank holds, count yourself lucky and lock in a fixed rate. Marcus and Justin both lean toward a 3-year term, since 3-year fixed rates are currently lower than 5-year rates and Marcus expects the conflict behind high oil prices to be resolved within about 18 months. Justin even thinks fixed rates could ease slightly on a hold, since they may already reflect a 25 bps hike.
If the Bank hikes once, the advice is the same, but sooner is better. Marcus jokes that plenty of people call after the hike, once the cart has already left.
If the Bank hikes and signals more to come, bond yields are likely to rise, and Marcus warns fixed rates can follow within 24 to 48 hours. Lenders are not slow to raise rates when yields move.
What This Episode Is Really About
Every path in this episode points to the same move: lock in a rate. It costs nothing, and if tomorrow’s announcement makes it unnecessary, you simply walk away from it. The only real question is how quickly you act.
Not sure what your mortgage options are? Talk to a Cannect expert now.
Watch the full episode of Make Money Count for the complete breakdown. Subscribe to the Cannect YouTube channel for weekly mortgage and real estate insights you will not find anywhere else.
