Money123: How the rate cut will affect you

How a single rate cut will affect your pocketbook

The Bank of Canada’s first interest rate cut in more than four years marks a turning point in the central bank’s inflation fight.

Wednesday’s policy rate cut of 25 basis points will immediately offer relief for Canadians with variable rates of debt, but also has implications for those gearing up to take a run at the summer housing market.

Mortgage rates on offer are set to drop, experts tell Global News, firstly for variable products and likely later on for those eyeing fixed mortgages.

James Laird, co-CEO of Ratehub.ca, says for sidelined homebuyers hoping to qualify for a larger property, a quarter-percentage-point rate cut won’t be a “dramatic help.”

But the confidence among buyers that rate hikes are over and the future trend is likely to be downward should stoke activity (and potentially even some FOMO) in the markets.

Read more on what the first rate cut of the cycle means for mortgages, home prices and what to expect in the summer housing market.

Taking to the skies this summer?

Cash-strapped Canadians planning their summer vacations might be wondering when they ought to book to score the best deals on airfare.

Chadd Andre, executive vice-president of Canadian travel agency Flight Centre, told Global News this week that a little foresight tends to pay for travellers.

“The further out you can book, the better. And when you find something that fits your budget or is a relatively good deal, do not wait,” Andre said.

Andre added that part of this is due to dynamic pricing in the industry, including flights and hotels, and stable prices are a “question mark” because you can’t rely on the price you see one day remaining that low for long.

Other cost-saving strategies might mean making a sacrifice or two on timing, however.

Read more on what experts suggest for the timing of your travel to avoid a budget hangover after a summer getaway.

…or are you planning a road trip?

If your summer travel plans are a bit more terrestrial in nature, there could be good news at the pumps for road trippers.

Monthly average gas prices in the country have been on a downward trend since April but remain relatively high, said Patrick De Haan, head of petroleum analysis at GasBuddy. He told Global News that expectations for a boost in gas supply in the months ahead could see those trends persist.

“As we get into the summer, I do think that gas prices nationally could drop another five to 10 cents a litre over the next several weeks as we approach Canada Day,” De Haan said.

If all goes well, De Haan expects that the Canadian average could fall below $1.50 per litre by July 1.

But as ever, there are “wild cards” hovering that could upend the forecast for gas prices, he warned.

Read more on what those could be, and what motorists should expect at the pumps this summer.

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– THE QUESTION –

“I’m planning to buy a home relatively soon in Oakville, Ont. (by the end of the summer/early fall) but I’m hopeful interest rates will be coming down before we have to close. If we make an offer on a house that’s accepted, can we stretch the closing date and keep shopping for rates until it closes? Or are we stuck with the rate we’re pre-approved for at the time the deal is signed? I’m also debating going variable, but the high upfront rates are spooking me. Any advice is appreciated.”

— A Money123 reader 

“You can close whenever you and the seller agree. As long as you give the lender enough notice, it doesn’t care and will honour the rate hold you secured at the time. If your closing date extends past the original rate hold end date, you can request a new rate guarantee based on current rates at that time. And yes, keep your eyes peeled for sweeter deals until a few weeks before closing.

Also, be sure to confirm your lender’s rate drop policy. Some lenders allow unlimited drops, some allow just one and a few (especially on promo rates) officially allow none. But if a lender has fully underwritten and approved your application, checked all your documents, etc., they won’t want to see you walk. Hence, they’ll likely remain competitive if you ask for a rate reset, provided you don’t leave it till the last minute.

As for betting on variable rates, we’re presumably coming down from the peak of a rate cycle, so variables should outperform fixed. Moreover, they have favourable prepayment charges relative to fixed and let you lock in any time, worst case. If you’re a well-qualified, risk-tolerant borrower, and find an aggressive rate from a transparent lender, variable is a good play here.”

–  Rob McLister, mortgage strategist, MortgageLogic.news

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