Money123: The return of rate hikes, home sellers and road trips?

Another rate hike. What comes next?

Many economists were surprised this week when the Bank of Canada raised its benchmark interest rate by another quarter of a percentage point to 4.75 per cent, the central bank’s first move since January.

The Bank pointed to an economy that’s running hotter than it first expected as justification for coming off the sidelines.

The extra 25 basis points on the Bank of Canada’s policy rate will be immediately felt by those with variable payments on their mortgages and in due course by those renewing their fixed rate terms.

But economists who spoke to Global News say despite the surprise this week, one rate hike might not be enough to satisfy the Bank’s concerns that inflation isn’t cooling quickly enough for its liking.

“This latest hike is to send the message that they are going to keep this battle raging against inflation,” said Jim Stanford, economist and director of the Centre for Future Work.

Read more on what to expect at the Bank of Canada’s next interest rate decision in July.

Sellers came back to the housing market in May

Before the latest rate hike, which some real estate observers said might put a damper on the housing market’s recent momentum, there were signs that sellers were emerging from the woodwork.

An RBC analysis released this week showed an “influx” of new listings last month across all the major real estate markets tracked by the bank.

That should help provide a bit of relief for buyers who have been competing for a limited supply of properties in the spring housing market, said the report’s author, Robert Hogue.

RBC’s assistant chief economist wrote that the apparent return of sellers is “good news” for buyers, but he warned the listings seen in May “made only a small dent” in the dearth of supply observed in most markets.

“It will take a further large influx of sellers in the coming months to bring markets into balance,” Hogue wrote.

Read more.

What you can expect from gas prices this summer

With summer road-trip season approaching, you may be wondering how the price of gas will impact your budget.

Analytics website GasBuddy is warning that while gas prices have dropped over the last week, a recent decision by OPEC+ to cut the supply of oil could place upward pressure on prices.

Patrick De Haan, head of petroleum analysis at GasBuddy, predicts prices between $1.45 to $1.80 a litre this summer but notes factors like hurricane season, which typically hits in July and August, could lead to a spike.

Read more here on what’s impacting prices at the pump.

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– THE QUESTION –

“Our (variable) mortgage rate has pushed us to the point where we probably can’t afford more interest rate increases. We are thinking about refinancing to stretch out how long we have to pay the loan back to give us some breathing room. My question is, should we stick with a variable rate or lock in a fixed one? If rates drop again, can we change the amortization again to lower it, or would we pay a penalty to do that? We have 15 years left on the mortgage right now.”

— A Money123 reader 

“At this time, I recommend that all borrowers with variable-rate mortgages contact their mortgage professional to determine if moving to a fixed rate is a good idea. Variable rates mortgages used to offer the lowest cost of borrowing, but today fixed rates seem to be where it’s at (in many cases favouring two or three-year terms.) A mortgage expert can quickly help you determine if you’ll lower your total cost of borrowing (calculating the cost to break your mortgage and the savings offered by the lower rate).

A longer amortization may be a great option, putting you in control of your finances. Many mortgages allow you to make lump sum prepayments to become mortgage-free faster. For example, if you want to pay off your mortgage within 15 years, a mortgage expert can calculate the additional monthly amount required to achieve your goal. You could set up automatic lump sum prepayments, and in case of unforeseen circumstances, or an emergency, you can always cancel the extra payment and return to the minimum.

If you move to a fixed rate now and then rates drop again, you would incur a penalty to break the mortgage and move to a lower rate. Mortgage penalty calculations vary from lender to lender – try to choose from lenders that offer the lowest cost to break your mortgage.

Your best mortgage strategy will be as unique as you are. You may want the lowest cost of borrowing, or perhaps improving your cash flow for retirement or having access to home equity to help your child(ren) buy a home would be most meaningful. Various mortgages are available to suit your unique lifestyle and objectives – speak with an expert to find the solutions that will best meet your needs.”

– Nicole Hayes, mortgage expert, BC Mortgage Expert

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