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Bank of Canada Leaves Prime the Same, April 2024

April 10, 2024 Calgary mortgage

As Expected, No change in Bank of Canada benchmark interest rate for April 2024.

As noted in August 2023, the 1st Prime Rate reduction is expected in July and then Prime should come down at o.25% every 90 days so … 1 quarter percent reduction, every calandar quarter, for the next 2 years.

Mortgage Mark Herman, best top Calgary Alberta mortgage broker.

Today, the Bank of Canada announced it is keeping its benchmark interest rate at 5.0%, unchanged from July of 2023. However, much has changed in the economy and in the world since then. For evidence, we parsed today’s announcement and present a summary of the Bank’s key observations below.

Canadian Inflation

  • CPI inflation slowed to 2.8% in February, with easing in price pressures becoming more broad-based across goods and services. However, shelter price inflation is still very elevated, driven by growth in rent and mortgage interest costs
  • Core measures of inflation, which had been running around 3.5%, slowed to just over 3% in February, and 3-month annualized rates are suggesting downward momentum
  • The Bank expects CPI inflation to be close to 3% during the first half of 2024, move below 2.5% in the second half, and reach the 2% inflation target in 2025

Canadian Economic Performance and Housing

  • Economic growth stalled in the second half of last year and the economy moved into excess supply
  • A broad range of indicators suggest that labour market conditions continue to ease. Employment has been growing more slowly than the working-age population and the unemployment rate has risen gradually, reaching 6.1% in March. There are some recent signs that wage pressures are moderating
  • Economic growth is forecast to pick up in 2024. This largely reflects both strong population growth and a recovery in spending by households
  • Residential investment is strengthening, responding to continued robust demand for housing
  • The contribution to growth from spending by governments has also increased. Business investment is projected to recover gradually after considerable weakness in the second half of last year. The Bank expects exports to continue to grow solidly through 2024
  • Overall, the Bank forecasts GDP growth of 1.5% in 2024, 2.2% in 2025, and 1.9% in 2026. The strengthening economy will gradually absorb excess supply through 2025 and into 2026

Global Economic Performance and Bond Yields

  • The Bank expects the global economy to continue growing at a rate of about 3%, with inflation in most advanced economies easing gradually
  • The US economy has “again proven stronger than anticipated, buoyed by resilient consumption and robust business and government spending.” US GDP growth is expected to slow in the second half of this year, but remain stronger than forecast in January
  • The euro area is projected to gradually recover from current weak growth. Global oil prices have moved up, averaging about $5 higher than the Bank assumed in its January Monetary Policy Report
  • Since January, bond yields have increased but, with narrower corporate credit spreads and sharply higher equity markets, overall financial conditions have eased
  • The Bank has revised up its forecast for global GDP growth to 2.75% in 2024 and about 3% in 2025 and 2026
  • Inflation continues to slow across most advanced economies, although progress will likely be bumpy. Inflation rates are projected to reach central bank targets in 2025

Outlook

Based on the outlook, Governing Council said it decided to hold the Bank’s policy rate at 5% and to continue to “normalize” the Bank’s balance sheet. It also noted that while inflation is still too high and risks remain, CPI and core inflation have eased further in recent months.

The Council said it will be looking for evidence that this downward momentum is sustained. Governing Council is particularly watching the “evolution of core inflation,” and continues to focus on the balance between demand and supply in the economy, inflation expectations, wage growth, and corporate pricing behaviour.

As it has said consistently over the past year, the Bank will remain “resolute in its commitment to restoring price stability for Canadians.”

Next Touchpoint

On June 5th, 2024, the Bank returns with another monetary policy announcement and economists are already lining up with predictions of a rate cut either then or in July.

How sudden job loss affects your mortgage pre-approval or approval

June 24, 2022 Mortgage Rules

 

If you’ve been thinking about buying a house, you’ve probably considered how much you can afford in mortgage payments. Have you also thought about what would happen if you lost your source of income?

While the sudden loss of employment is always a possibility, the current uncertainty of our economy has made more people think about the stability of their income. Whether you’ve already made an offer on a home or you’ve just started looking, here is how job loss could affect your mortgage approval.

What role does employment play in mortgage approval?

In addition to ensuring you earn enough to afford a mortgage payment; mortgage lenders want to see that you have a history of consistent income and are likely to in the future. Consistent employment is the best way to demonstrate that.

To qualify for any mortgage, you’ll need proof of sufficient, reliable income. Your mortgage broker will walk you through the income documents your lender will need to verify you’re employed and earning enough income. So, if your employment situation is questionable, you may want to reconsider a home purchase until your employment is more secure.

Should you continue with your home purchase after you’ve lost your job?

What if you’ve already qualified for a mortgage, and your employment circumstances change? Simply put, you must tell your lender. Hiding that information might be considered fraud, and your lender will find out when they verify your information prior to closing. If we are aware of this change we may be able to work it out with the lender.

What if you don’t tell the lender or us – your broker – and hope the lender does not find out?

The lender will probably “pull your financing” if they find out on their own, and this can happen right up to the minute before possession, like 11:59 am on possession day.

At best, you may “close late” and there are fees for that, at worst, you could both:

·         Lose your deposit that you gave and

·         Be sued for “specific performance” of completing a legal and binding contract to buy the home. If the sellers need the funds to close on another house, they could “fire sale” the home for say $50,000 less and sue you for that to. And you will probably lose.

If you’ve already gone through the approval process, then you know that your lender is looking for steady income and employment.

Here are some possible scenarios where you may be able to continue with your purchase:

  • If you secure another job right away and the job is in the same field as your previous employment at a direct competitor. You will still have to requalify, and it may end up being for less than the original loan, but you may be able to continue with your home purchase. Be aware, if your new employer has a probationary period (usually three months), you might not be approved.
    • TIP: ask if you can have probation waived or be hired without probation.
  • If you have a co-signer on your mortgage, and that person earns enough to qualify on their own, you may be able to move forward. Be sure your co-signer is aware of your employment situation.
  • If you have other sources of income that do not come from employment, they may be considered. The key factors are the amount and consistency of the income. Income from retirement plans, rentals, investments, and even spousal or child support payments may be considered if we have not used that income to qualify you please tell us.

Can you use your unemployment income when applying for a mortgage?

Generally, Employment Insurance income can’t be used to qualify for a mortgage. The exceptions for most financial institutions are seasonal workers or people with cyclical employment in industries such as fishing or construction. In this situation, you’ll be asked to show at least a 2-year cycle of employment followed by Employment Insurance benefits.

Also if you are in an apprenticeship, then you are on EI when you are in your “school term” and that is totally fine.

What happens if you’re furloughed (temporary leave of absence)?

Not all job losses are permanent. As we’ve seen during the COVID-19 pandemic, many workers were put on temporary leave. If you’ve already been approved for a mortgage and are closing on a house, your lender might take a “wait-and-see” approach and delay the closing if you can demonstrate you’ve only been furloughed. In these cases, you’ll need a letter from your employer that has a return-to-work date on it. Keep in mind, if you don’t return to work before your closing date, your lender will likely cancel the approval and ask for a resubmission later.

If you haven’t started the application process, it would be wise to wait until you are back to work for at least 3-months to demonstrate consistent employment.

Your credit score and debt servicing ratios may change because of lost income, which means you may no longer meet your lender’s qualifications for a mortgage. While it may not be possible, try to avoid accumulating debt or missing any payments while unemployed.

Talk to your mortgage broker.

You don’t want to get locked into a mortgage you can’t afford. You also don’t want to lose a deposit on a home because you lost your financing.  When trying to assess if it’s better to move forward or walk away, we should be your first call.