You Can’t Control The Bank of Canada but You Can Control How You Respond

The Bank of Canada did exactly what Canada’s main commercial lenders expected and raised interest rates by .25 bps, increasing the bank rate to 5.0%.

And here’s why: the Canadian economy continues to be more resilient than expected in 2023. GDP growth has exceeded expectations, consumer spending has been holding up despite higher rates and prices, and the housing market, in part due to lack of supply, has bounced back. Add to this, the labour market remains tight and inflation is still stubbornly high.

If the Bank of Canada didn’t continue to aggressively try to beat down inflation to their target of 2%, the fear was they may never get there. And while our Central Bank is independent of the US Federal Reserve, we can’t lose sight that the US is a key trading partner and if rates continue to go higher in the States and the US/Canadian dollar spread widened, our costs would continue to go higher as we import a lot of goods. 

The bottom line is, a rate hike had to happen, it was data-dependent, and the Bank of Canada didn’t want to be seen as waffling. We now have 6 weeks until the next rate announcement on September 6th and between now and then, they will have a lot more data to consider.

What does this mean to you?

If it feels tough for you financially speaking, it is because you may be living so close to the margin. With debt payments and inflation consuming more of your household income, you may be faced with the possibility of increasing delinquency levels. The reality is higher rates and prices are starting to impact household incomes, so you aren’t alone. And sadly, we aren’t through it yet.  Many are still suggesting the most likely outcome is a “mild” recession in Canada beginning in the 3rd quarter and 4th quarter of 2023.

Middle-income families are making compromises and cutting back on food staples, discretionary spending, and scraping by. While others on a fixed income are falling further behind taking on more debt in the hopes it is temporary. 

Yet through this period, I would argue you can still take control and come roaring back from a recession if you don’t become paralyzed with fear and take action.

Here are 5 ways to use the value in your home as your personal ATM:

  1. If you are struggling and over the age of 55 and have value built up in your home, I urge you to explore a CHIP Reverse Mortgage. This is a product that is right for some, not for all, but worthy of exploring. If you are feeling financially squeezed this could be the solution for you. While it is tough to eat a brick in retirement, you could use the money taken out of the value of your home to buy groceries. You may have access to funds you have never considered before.
  2. Review all recurring costs, insurance premiums, streaming services, and cable and shop around for lower prices.
  3. Stop eating out, try a meatless day, buy in bulk and seasonally consider shopping at local farmer’s markets. Food costs are stubbornly high. Try to reduce some of these costs by checking flyers and ads for specials, clipping coupons is back in style and if you find yourself with leftovers – get creative and reduce waste. Yet still having a little extra money by taking some of the equity out of your home can improve your day-to-day standard of living and health.
  4. Pay off your debt. With a CHIP Reverse Mortgage, you can pay off your debt leaving more money in your pocket, you don’t have to pay the reverse mortgage back as long as you are living in the home and maintaining it. 
  5. Use the proceeds from your home to renovate your home. There is tremendous comfort in knowing you don’t have to make any big lifestyle decisions due to the current economic environment.

Sometimes you have to change your mindset.

I recently chatted with Mike. His costs had been escalating and he felt the financial burden and pressure of trying to make ends meet. He went so far as to say he felt he had run out of options. He didn’t want to sell his farmland and while he had a Home Equity Line of Credit, he had considerable value built up in his property. He felt shame and thought he was unsuccessful in tapping into his home to retire his debt when the costs were increasing. 

I asked him why he felt this way. From my vantage point, he was extremely successful. Unlike some, he had options that allowed him to pay off a line of credit, stay in his home, farm the land he loved, and lift a huge financial burden while allowing his home and land to continue to appreciate to provide for his family down the road. 

After a number of chats with HomeEquity Bank’s call center, me and his family, Mike came to realize a CHIP Reverse Mortgage made all kinds of sense and he was in fact successful on so many levels when he looked at it through a different lens and change your mindset. 

You can’t control what the Bank of Canada does but you can control how you respond to it.

Pattie –

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