The Mortgage Minute: Issue #3

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After a month-long hiatus, I’m back at it again. Sharing my third update email on anything and everything related to the real estate and mortgage industry.

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Rising mortgage interest rates are like unexpected guests, they show up uninvited and overstay their welcome

We saw yet another rate hike in December, but it doesn’t look like Tiff Macklem and his friends at the Bank of Canada are done just yet. After all, the party must go on! Economists are predicting another 0.25% rate hike on January 25th - all in an effort to curb inflation and avoid a resurgence. On a slightly positive note, headline inflation declined in December, but not enough to provide a strong enough signal as to whether we’ll see meaningful progress in the coming months. Good things come to those who wait, right?

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Personally, I’m a fan of looking at history to gauge if it’s repeating itself (which it often does). Below is a table that shows the % increase from a rate at its lowest point over a period of time until it reaches its peak. It also shows how long it stays at the peak before it begins its descent.
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What you’ll notice is that it typically takes roughly 14 months to reach the peak rate after the initial hike. If our first hike began in March 2022, we can expect (and hope) to peak between now and April. Once we hit our peak, we’ll have to weather the storm for another approx. 9-14 months before we can expect the Bank of Canada to start easing the rate environment - especially after they inevitably cause a recession.

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DISCLAIMER: I don’t have a crystal ball.

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Empty Homes, Full Taxes: If your house is empty, the government wants to make sure your wallet is too!

I imagine every politician goes to sleep dreaming of the different ways they can tax us. Low and behold, they’ve collectively found another way! Introducing the Vacant Home Tax.

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It’s effectively a tax imposed on property owners who leave their homes unoccupied for a certain period of time. The tax is designed to encourage property owners to either occupy their homes or rent them out instead of leaving them vacant. Playing devil’s advocate - the tax does help ensure there’s enough housing available, while also keeping rental prices affordable.

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The threshold for classifying a home as vacant is if it’s not occupied for 6+ months in a year. Each municipality will be sending out a notice to homeowners requiring them to declare whether they occupy their home, if it’s rented, or if it’s vacant. Be sure to declare the status of your home correctly as it wouldn’t surprise us if homes were audited. NOTE: The deadline for declaring your status in Toronto is Feb 2, 2023 - if you fail to declare, you could be fined up to $10,000.

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If your home does remain vacant, you’ll be taxed 1%, per year, on the assessed value of your property.

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Reference link to Vacant Tax information for City of Toronto: https://www.toronto.ca/services-payments/property-taxes-utilities/vacant-home-tax/

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#MorePropertiesMoreProblems

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Steady beat or wild ride - pick your poison

It’s the most common question I get from clients - “fixed or variable” - and I’ll be honest, it’s a tricky decision. Imagine trying to decide between a steady-income GIC or taking a risk on a high-growth stock that may potentially result in a greater return - you’ve got to balance the pros and cons of each. That’s what clients are facing both with new home purchases as well as upcoming renewals.

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On one hand, fixed rate mortgages offer the security of a consistent interest rate and monthly mortgage payment. That allows you to appropriately budget and plan for the longer term. On the other hand, a variable rate mortgage offers the potential for lower rates and more flexibility, but comes with the risk of rates increasing and your household budget being thrown completely out of whack (as we’ve seen over the course of the last year).

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It ultimately comes down to your level of risk tolerance. If you prefer predictability and stability, and want to sleep easy at night, then fixed is the way to go. If you’re feeling adventurous and can stomach the risk of volatile rates in hopes that you may save money in the future, then try your hand at a variable rate.

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It’s worth noting that while variable rates have historically been lower than fixed, they’re currently sitting at almost 1% higher than current fixed rates. That’s directing customers to opt for a shorter term fixed rate (1-3 years) to weather the storm with predictability before seeing where the chips land and deciding whether they’d like to switch back to variable at the end of their term.

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Everyone has a unique situation. Unfortunately, the decision between fixed and variable isn’t cookie cutter. I highly recommend you have an open and honest conversation with either a mortgage broker or financial advisor to determine what’s best for you.

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Thanks for making it this far! If it isn’t already obvious - I LOVE mortgages. Feel free to email, call or DM me on social media if you’re ever interested in reviewing your current mortgage, looking to understand what you qualify for, or simply just want to chat..

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