Historically the Bank of Canada (BOC) has moved in 0.25% increments, with rare exceptions. This tradition was abandoned totally in 2022 and here we sit with a 4.75% increase to Prime in the span of just 10 meetings.
Nearly double the pace we were conditioned to expect, and basically triple to quadruple the rates of just 18 months ago.
More than twice the total rate increase predicted in late 2021 by just a few aggressive economists… who were nowhere near aggressive enough it now seems. Although to be fair few people agreed with their outlook then, tame as it looks now.
It is a vast world of difference, the word of then vs the world of now.
The June hike made for the equivalent of 18 quarter point movements, bringing to mind the classic punchline of Robin Williams bit on golf.
“18 F’ing times!!!”
But now, carrying on with the golf analogy, we arrive at the 19th hole.
Another 0.25% hike this past July 12th
The equivalent of 19 x 1/4 point hikes.
Up 4.75% from the low of 0.25% to a 20+ year high of 5%… wow!
Now, as with the 19th hole, this is where things need to wrap up.
The games been played, let’s now pause and discuss, let’s marinate in the aftermath of what’s been completed… let’s take a beat!
Because the pain is real.
The suffering is real.
Mostly silent suffering, because that’s how we do things here in Canada.
We suffer in silence.
We shouldn’t, but we do.
We fail to ask critical questions well in advance of the pain…
Can your bank extend your amortization, to lower the payment for a time?
Maybe, but you have to ask the right person.
And if the answer is no the first three times, keep asking.
Is your mortgage insured?
Did you put less than 20% down when you bought?
If so then the insurer may be able to help adjust your amortization out as well, because they have that kind of pull with your lender.
So why isn’t anyone telling you this?
I am, right now.
But why isn’t your lender reaching out with options?
Because they wait. They wait until you either ask, are late with a mortgage payment, or miss one completely – and then they step in to assist you.
Why?
Because the late/missed payment sends up a flare.
No problems, no flares, and they assume you’d ask for help if you needed it.
Is this an entirely logical approach?
No.
As mentioned last week, I myself extended my amortization to 40yrs on what was originally a 25yr mortgage through my lender. This’s made the math work on a property that I might be otherwise inclined to sell… if the math didn’t work.
And if I sold it, my tenants would be looking at a $1,250 increase in rents, because… the market!
So I am happy the bank was willing to work with me on day one.
My tenants are also happy about this, as I might otherwise be considering selling the property. But for the time being it works out reasonably well.
How did I get this special treatment from my lender?
By asking.
Am I actually out of savings?
No.
Could I afford the higher payment?
Technically yes, and maybe you can (technically) too.
But why, why would any of us, wait until we’re in a truly tight spot to take action?
Why would allow an unnecessary drain on cash reserves?
When it can be prevented, don’t allow it.
If cash is King, then cashflow is Queen.
Cash in hand, combined with cashflow, these are the true dynamic duo, to be preserved and protected at all costs.
Take action.
Take steps.
Before you are in a crisis
DW