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With the Bank of Canada’s latest interest rate hike in July, life keeps getting more expensive for those with a mortgage.
Angela Calla, mortgage broker at Dominion Lending Centres in Vancouver, notes that regardless of income level, having to qualify at interest rates that are 4 or 5 percentage points higher than when a homeowner first got their mortgage is certainly a pressure cooker. She recently shared her thoughts with Globe Advisor on strategies for how her clients are coping.
What things do you advise clients to consider at mortgage renewal time?
With another hike looming in the fall, anybody who has a renewal upcoming in the next year shouldn’t wait to secure a rate to protect themselves and minimize their payment shock.
They also need to consider if they want to move up the property ladder in the future or have outside debts. The mortgage renewal is the optimal time to review your options because there’s no penalty.
If they live in a strata property, they want to make sure that they have no assessments coming up. It’s essential for them to take out the money to have in an emergency fund for that. We’re seeing a lot of people getting hit with assessments on their condos for certain items such as roofs. That can be detrimental to people on a fixed income in these high inflationary times and even at the best of times. If they need to break their mortgage down the road, then they’re looking at a penalty. In the middle of an assessment, lenders don’t look at these properties favourably.
What are your clients doing to manage the rate increases?
Some people who are experiencing the largest increases are using a reverse mortgage. They’re getting these because they don’t want to take their money out of investments and pay taxes on them. They already feel like they may not be prepared for retirement with the increase in inflation. It’s been common for them to take a three- or five-year term to help things as they settle.
Some are putting their emergency funds in a high-interest saving account paying more than 5 per cent. So, instead of paying property taxes with their mortgage or pre-paying their mortgage, they’re putting those funds aside in their emergency funds.
Some are extending their amortization to give them some time until rates come back down. Some want to sell and rent but the problem is there’s no product to rent.
What’s your overall outlook that you share with clients who are finding it tough to cope?
I tell my clients that anything they do right now is specific to this time in the market and specific financial circumstances. It can always be modified and changed when other things change down the road.
This interview has been edited and condensed.
- Deanne Gage, Globe Advisor reporter
Must-reads from Globe Advisor this week
Weighing trade-offs between short-term investments with higher interest versus long-term dividend-payers
Rising interest rates have presented an opportunity for investors with short-term investment payout rates now greater than longer-term fixed-income vehicles. These investments also have more predictable returns than equities. Some portfolio managers feel you can’t go wrong when it comes to choosing between higher payout short-term investments and dividend stocks. Terry Cain speaks to three advisors about how they’re rebalancing client portfolios to take advantage of the higher interest rate environment.
Breaking down what it costs for advisors to deliver results
There’s a moment in every conversation with a prospective client that some advisors dread. You’ve established rapport, everyone is smiling, and then you have to bring up fees. Understanding what an advisor is trying to accomplish and how much it’s going to cost is in everyone’s interest. Alexandra Horwood, portfolio manager and investment advisor with Alexandra Horwood and Partners at Richardson Wealth Ltd. in Toronto, says it’s critical to illustrate what investors get in exchange for what they pay, demonstrating the value added by behavioural coaching, customized tax planning, active rebalancing and any other services. Alison MacAlpine looks at the best ways to talk about costs with clients.
Headwinds for commercial real estate could have a dire impact on pension plan holders
Few asset classes face as many challenges in the post-pandemic era as commercial real estate – specifically, the office segment. These troubles present potential concerns for institutional investors, including pension plans that have allocated significant capital to the space during the past decade. And that, in turn, could be a big issue for Canadians who rely on these pension plans as cornerstones of their retirement. Joel Schlesinger reports on the signs of stress that are emerging in the sector and what this could mean for Canadian pension plan holders.
Why investors need to focus on what they can control
As investors, our attention is finite, and time is a limited resource. With this constraint in mind, it’s wiser to focus more on the elements within our control and less on those beyond it, writes Felix Narhi, chief investment officer and portfolio manager of PenderFund Capital Management Ltd. There are countless things we cannot control. For instance, we don’t know where interest rates will be in a year, and neither does anyone else. While they’re important, they remain unknowable. So, why spend valuable time and effort on such an exercise? he asks. Mr. Narhi explains what investors need to pay attention to to improve the odds of success.
Also see:
Why this money manager isn’t waiting for a possible recession to buy more stocks
Why this international teacher from Canada eventually chose to retire in Mexico
What latest inflation data could mean for future interest rates in this week’s Advisor Lookahead
What you and your clients need to know
Financial institutions face class-action lawsuit over GoAnywhere data breach
A group of investors has filed a lawsuit against several Canadian and U.S. financial institutions, alleging they failed to protect their clients after confidential investor information – including social insurance numbers – was stolen in a January cyberattack. Merchant Law Group LLP has filed a class-action lawsuit this week against Mackenzie Investments, Edward Jones, back-office service provider InvestorCOM Inc., which provides printing and delivery of client materials using a popular data transfer tool called GoAnywhere, and U.S.-based Fortra LLC, the cybersecurity company that owns GoAnywhere. Clare O’Hara and Irene Galea report on the allegations.
Even with regulators sniffing around, HISA ETFs are a great way to exploit high rates
If the Bank of Canada raises interest rates again this year, high interest savings account exchange-traded funds (ETFs) are an ideal way for investors to benefit. The federal Office of the Superintendent of Financial Institutions has been looking into HISA ETFs to see if they present a risk to the banking system. This week, OSFI said it would defer a decision until October. OSFI says any changes to HISA ETFs would not take effect until January 2024, which means these funds remain attractive in the near term. These funds typically pay about 5.2 to 5.3 per cent after fees. Rob Carrick looks at why these could be a good bet.
Want to retain top talent? Start with an external salary benchmark
The competition for skilled talent in Canada is continuing to accelerate, with the majority of organizations (70 per cent) seeing this shortage in skilled workers as a major barrier for success, according to Equinix’s Global Tech Trends Survey. On the flip side, amid greater market volatility today’s workers are re-examining what their total compensation looks like (or how they want it to look) and how to handle increased economic pressures and cost of living. Things like rising food costs, higher rents and skyrocketing home ownership prices are placing increased strain on workers and companies across the country, especially in two of Canada’s leading hubs for innovation – Vancouver and Toronto. Andrew Eppich of Equinix Canada looks at what can be done to help close the talent gap while alleviating economic pressures.
– Globe Advisor Staff