Money123: A budget for the youths

What was in Budget 2024?

The Liberal government said it was trying to promote “generational fairness” with its 2024 federal budget delivered this week.

It was a budget with plenty of spending, experts noted, paid for in part by a stronger-than-expected economy to start the year and changes to how capital gains are taxed to target wealthier Canadians.

For gen Z and millennials, the Liberals proposed changes to reduce fees on everything from banking to switching telecom providers to buying tickets for your favourite artist’s concert. (See you in November, Ms. Swift.)

There are also a few measures aimed at helping first-time homebuyers break into the housing market and plenty of items designed to spur faster homebuilding and boost supply.

Paul Kershaw, founder of Generation Squeeze, tells Global News that while he’s encouraged by the recognition in the budget that Canada’s youth have widely had a tough break in the housing market and economy more broadly, one budget alone won’t change the affordability picture for most young Canadians.

“I wish I could deliver the message that tomorrow everything is going to be better,” he says.

Read more on what Budget 2024 means for Canadians’ hopes of buying a home and who could get hit by changes to capital gains taxes.

Heard of mortgage assumptions?

One possible path for would-be homebuyers to get a lower interest rate is to assume the mortgage from the seller.

In today’s elevated interest rate environment, some sellers might be holding onto mortgage rates taken out a few years ago that are well below market rates. If a buyer qualifies with the homeowner’s existing lender, they can take over the remaining mortgage at the time of purchase, assuming the cheaper rate until the end of the term.

But experts who spoke to Global News for this month’s instalment of the Home School series warn there are plenty of risks and drawbacks to assuming a mortgage that might not make it the golden ticket into the housing market some might be after.

For one, buyers have to assume the mortgage as is, which means the same remaining principal amount and mortgage term.

Victor Tran, broker with True North Mortgage and the mortgage and real estate expert at Rates.ca, tells Global News that this can mean a buyer has to make up the difference on their own if the existing mortgage isn’t enough to cover the purchase price.

Read more on what obstacles exist for buyers and the risks facing sellers in the case of mortgage assumptions.

Inflation acceleration

Canada’s annual inflation rate ticked up to 2.9 per cent in March, up front 2.8 per cent in February, Statistics Canada said this week.

That was driven by a hike in gas prices last month, the agency said – a phenomenon that continued this week amid a changeover to summer blends of gasoline, experts said. Shelter inflation was accelerating in March, StatCan said.

The silver lining in the inflation report was a continued easing in food inflation. The cost of buying food from the grocery store was up 1.9 per cent year over year last month, down from 2.4 per cent in February.

The Bank of Canada, which opened the door to interest rate cuts as early as June in its decision last week, has said it would be carefully watching the coming inflation reports to gauge when it could lower its policy rate.

Despite a tick up in the headline inflation figure, the central bank’s measures of core inflation were all down in March, StatCan reported.

“For the Bank of Canada, this result is likely just good enough to keep them on track for a potential trim in June,” BMO chief economist Doug Porter said in a note.

Read more on what the latest inflation figures mean for interest rates and the cost of living in Canada.

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– THE QUESTION –

“I was wondering if it’s acceptable to rely on a line of credit as an emergency fund. I have $30K saved right now in a TFSA that I’m hoping to use for a down payment on a home in a year. I want to put it into a GIC to give it a boost before I use it. But if I’m left without an emergency fund while it’s in there, is there anything wrong with using the credit I’m offered from my bank to cover off any emergencies that arise?”

— A Money123 reader 

“An emergency fund provides a reliable source of money in situations like job loss or an unexpected expense. In contrast, a line of credit is less reliable. Your bank could close your credit at any time, for any reason, such as inactivity. Although unlikely, imagine an unexpected expense coming due only to find out your line of credit was closed by your bank last week! Ultimately, relying on a line of credit as an emergency fund increases your risks — the decision to use it as such depends on your risk tolerance.

Another issue is the interest rates. Interest rates are ever-changing and having to pay it could further deteriorate your finances if you just lost your job. Using the $30,000 in your bank won’t come with any charges or interest, and there is a certain peace of mind knowing you’re not digging yourself into debt. Layoffs or sudden vet visits/car repairs are stressful enough — having to borrow that money and pay it back with interest makes the situation tougher.

Alternatively, you could consider putting some portion of the $30,000 into a high-interest ETF like TSX:CASH.TO or TSX:PSA. These ETFs are more liquid than a GIC (i.e., you can cash it out at any time and use the money for your emergency) but pay you an interest rate much higher than the standard high-interest savings account. And unlike other ETFs based on stock prices, these high-interest ETFs do not fluctuate in price over time — their objective is to maintain your capital, provide a monthly income and remain liquid. Their interest rates may be lower than a GIC and the rate is not locked in, but it could be a worthy price to pay for the liquidity.”

–  Adrian Zee, personal finance writer

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