BoC Rate Cut Sept 2024 & Ready to Buy your First Home?

Neil:

Hey everyone, welcome back to "Getting Your Sh*t Together." I’m Neil, your go-to mortgage agent, and I’m here with my co-host, Jerome. How’s it going, Jerome?

Jerome:

Hey Neil, doing great! Ready to dive into another hot topic. I hear the Bank of Canada gave us something to talk about?

Neil:

Oh, absolutely. They just made another move on Wednesday the 4th of Sept, cutting the policy rate by 0.25%—that’s the third cut in a row. The rate’s now down to 4.25%, which nudges the Prime Rate to 6.45%. It’s definitely got people talking, especially those with variable-rate mortgages. Those of us with Variable Rate Mortgages were battered in the years 2022 and 2023 with the unprecedented hikes we witnessed and so this is very much welcome relief for the survivors…

Jerome:

Yeah, it’s interesting. I mean, for anyone with a variable-rate mortgage, this is good news in the immediate term—your monthly payments just got a little lighter, about $20 less for every $100,000 you owe. But, Neil, you and I both know there’s more to the story here. What’s your take?

Neil:

Exactly, Jerome. While the rate cuts are helpful, they don’t necessarily make it easier to qualify for a mortgage. If you’re out there shopping for a new home or looking to refinance, the reality is you might be limited to a 5-year fixed or at best a 3-year Fixed term to get the most out of your qualification. So, while your payments might be lower, your borrowing power isn’t necessarily increasing and so there is the risk of you locking yourself into a higher rate for longer if you purchase or refinance now.

Jerome:

That’s a great point. And with the economy slowing down—CPI is easing, GDP is flat, and job growth is slowing—it seems like we’re in for more cuts. The Fixed-rate mortgages have been leading the way… we have seen cuts of as much as 1.40% from the peaks as the bond yields have come down significantly from their peak.

Neil:

Yeah, bond yields are definitely something to watch. They’ve been shrinking, but still, the gap between them and fixed mortgage rates is a bit above average. As demand for mortgages picks up, we could see more competitive fixed rates. But let’s get into it—what should people be doing with their mortgages right now?

Jerome:

It really depends on where you’re at. If you’re struggling with variable rates and those monthly payments are stressing you out, switching to a 3-year fixed rate could be a good move. You lock in some stability without committing to a long-term fixed rate that might look bad if rates continue to drop.

Neil:

Right, but if you’ve got some wiggle room in your budget, sticking with a variable rate could save you more in the long run—especially if the Prime Rate drops another 1.50% like some are predicting. But it’s a bit of a gamble, isn’t it?

Jerome:

It definitely is. You’re betting on those rate cuts continuing, and if they don’t come through as expected, you could end up paying more. That’s why I think the 3-year fixed is a safer bet for a lot of people right now, especially if you’re up for renewal soon. But better check the spread between the Variable Rate Mortgage and the 3-year Fixed Rate offered before making the determination.

Neil:

And speaking of renewals, if your renewal is coming up, the 3-year fixed rate can give you some peace of mind. You get a bit of relief now and the flexibility to refinance or renew again in a few years when rates might be even lower.

Jerome:

But what about those already locked into a fixed rate that’s above 5%? They’re probably feeling a bit of FOMO with all these rate cuts.

Neil:

They are, and it’s tough. If you’ve got more than 2.5 years left on your term, it might be worth looking at your options now, but breaking that mortgage early could be costly. It’s a balancing act—you don’t want to wait too long, but you also don’t want to jump ship if it’s going to cost you more in penalties. If you are lucky you might be able to get away with just 3 months of interest costs as penalty but if one waits longer that will definitely not be the case.

Jerome:

And that’s where getting personalized advice is key. Everyone’s situation is different, and a one-size-fits-all approach just doesn’t work.

Neil:

Exactly. Now, let’s pivot to potential homebuyers. With rates falling, some might think about waiting it out to see if they can snag an even better deal down the road. But, Jerome, what’s the risk in that?

Jerome:

It’s tempting to wait, but here’s the thing—by the time rates bottom out, the real estate market could be heating up. We’re already starting to see signs that sales activity is picking up. This Fall season should be busier than last year. And if the Bank of Canada keeps cutting rates, we might see even more buyers jumping in.

Neil:

Yeah, and that could lead to more competition, higher home prices, and less room for negotiation. Personally, I do not expect prices to shoot through the roof or market to become as crazy as the pandemic times, but we could see no-condition offers come back soon enough. If you’re serious about buying, now might be the time to start looking, even if the rates haven’t hit rock bottom yet.

Jerome:

I agree. Keep an eye on what’s happening in your desired neighborhoods. The last thing you want is to start preparing when everyone else is jumping in—that’s when prices go up, and you might miss out on your ideal home.

Neil:

So true. It’s all about being proactive. If you’re ready to buy, getting pre-approved now and staying informed about the market trends can put you in a much better position when the right opportunity comes along.

Jerome:

And remember, folks, it’s not just about the rate. Look at the bigger picture—your finances, your goals, and how long you plan to stay in the home. Make sure everything aligns before you make a move.

Neil:

Absolutely. So, whether you’re a current homeowner or a potential buyer, now’s the time to get your sh*t together and make a plan that works for you. And as always, if you need help navigating these decisions, Jerome and I are here to help.

Neil Joseph: "Welcome back to 2nd half of this episode.. I’m Neil Joseph,

Jerome Christensen: And I’m Jerome Christensen.

Neil Joseph: Today, we’re tackling a question that’s on the minds of a lot of folks: When is the right time to buy a home?"*

Jerome Christensen: "Hey Neil, this is such an important topic. Buying a home is one of the biggest financial decisions most people will ever make, and the timing can really make or break your experience. Whether it’s the state of the market, your personal finances, or even just feeling ready for that kind of commitment—it all plays a role in deciding when to jump in."

Neil Joseph: "Absolutely. And what we want to do today is break down the factors that should go into that decision. We’re talking about everything from market conditions to your own financial situation—because let’s face it, buying a home isn’t just about finding the right house, it’s about finding the right time."

[Middle Segment: Discussion, Checklist, and Examples]

Jerome Christensen: "Let’s start with market timing, which is often the first thing people think about when considering buying a home. The market can be tricky—sometimes prices are high, sometimes they’re low, and it’s hard to predict what will happen next. But here’s the thing: trying to time the market perfectly is almost impossible. Instead of waiting for the ‘perfect’ time, it might be more important to consider whether you’re ready personally and financially."

Neil Joseph: "Exactly. I’ve had clients who waited for prices to drop and ended up missing out on years of potential equity growth. On the other hand, I’ve seen others jump in too quickly without considering their own financial readiness, and that can lead to stress and regret. For sure walk away from a deal if the price seems too high. One way to assess the price is to look at the long-term price trend for the property and the neighborhood. If it’s way above the calculated price based on long term average appreciation, then walk away. Any competent realtor should be able to work this out for you. Otherwise, know that your realtor is competent enough. But do note that the market condition is only one piece of the puzzle. "

Jerome Christensen: "That’s why it’s so crucial to look at your personal financial situation first. Are you in a stable job with a steady income? Do you have enough saved for a down payment? And don’t forget about closing costs and the extra expenses that come with homeownership, like maintenance and repairs. It’s about more than just scraping together a down payment—you need to be financially ready for the whole package."

Neil Joseph: "Right. And speaking of being ready, we’ve put together a checklist to help you assess whether now might be the right time for you to buy. Let’s walk through it."

1. Stable Income: Do you have a steady job with reliable income? Have you been in your current position long enough to feel secure?

2. Savings for Down Payment: Have you saved enough for a down payment? Ideally, this would be 20% of the home’s purchase price to avoid mortgage insurance, but even a lower percentage can work if you’re prepared for the extra costs and you think saving up the additional amount is going to take way too longer.

3. Closing Costs: Have you factored in the closing costs, which can be anywhere from 1.5% to 4% of the purchase price? This includes things like legal fees, inspection fees, and land transfer taxes.

4. Emergency Fund: Do you have an emergency fund that could cover at least three to six months of living expenses? This is crucial in case something unexpected happens after you buy your home.

5. Debt-to-Income Ratio: Have you calculated your debt-to-income ratio? Ideally, your housing costs (including mortgage, taxes, and insurance) should be no more than 32% of your gross monthly income. Or do you think you could bring this in-line by generating income from your home?

6. Credit Score: Is your credit score in good shape? A higher credit score can help you get a better mortgage rate, which could save you thousands over the life of your loan.

7. Long-Term Plans: Do you plan to stay in the home for at least 5 to 7 years? Buying a home is a long-term commitment, and selling too soon could mean losing money due to transaction costs and market fluctuations.

8. Market Conditions: While it’s not easy to time the market, are you aware of the current market conditions in your area? Are you prepared for potential changes in interest rates or housing prices?

9. Personal Readiness: Are you emotionally and mentally ready for the responsibility of homeownership? This includes being prepared for maintenance, repairs, and the ignoring ups and downs of the housing market after you have made the purchase.

10. Professional Guidance: Have you consulted with a mortgage broker or financial advisor to discuss your options and make sure you’re fully informed? I think this is one of the first things you should consider"

Neil Joseph: "If you can check off most of these items, you might be in a good position to start seriously considering buying a home. But if not, that’s okay—it just means you’ve got some work to do before you’re ready."

Jerome Christensen: "Exactly. And if you’re not quite there yet, focus on what you can control. Build your savings, pay down debt, and work on boosting your credit score. When you’ve got those bases covered, you’ll be in a much stronger position to buy when the time is right for you."

[Closing Segment: Call to Action and Thank You]

Neil Joseph: "So, if you’re thinking about buying a home, use this checklist to help you figure out if now is the right time for you. Remember, it’s not just about what the market is doing—it’s about making sure you’re financially and personally ready for the commitment."

Jerome Christensen: "And if you’re unsure where you stand, that’s where we come in. We’re here to help you assess your situation, explore your options, and make a plan that works for you. The right time to buy is when you’re ready—not when someone else says you should be."

Neil Joseph: "Thanks for tuning in to this episode of 'Getting Your Sht Together.' We hope you found the checklist helpful, and we’re looking forward to bringing you more insights in our next episode. And remember, if you’re thinking about buying a home, take your time, get your finances in order, and reach out if you need some guidance. We’re here to help you every step of the way."*