June’s CPI (Consumer Price Index) report is out and inflation is headed in the right direction!

First, the GOOD news:

• Headline inflation came in at 2.8%, lower than the expected 3%

Now for the not so good news:

• Energy prices are moving higher this month
• The 3 month core inflation (watched closely by the Bank of Canada) accelerated slightly. Back in May, this had dropped. Bringing inflation down to 2% or less is not expected to be a straight line; however, no one likes to see any inflation measure move back up after the year we have had so far.
• For the remainder of this year, the year over year comparables are more challenging. This makes it more difficult for inflation to slow down and we may see it tick back up.

Not surprisingly, mortgage interest costs rose by a whopping 30.1% year over year. If these costs are taken out of the equation, CPI is at 2%. Does this mean that the Bank of Canada is done hiking rates? Unfortunately not. With core inflation appearing sticky, there is a chance that inflation can go back above 3% and another Bank of Canada rate hike is not off the table. Keep in mind that the BoC has said that it may take until 2025 to get inflation back to target – a blip here and there is not unexpected.

INTEREST RATES

As of this writing, the 5 year Canadian Bond Yield has decreased on the news of lower headline inflation. If this continues, we may see lower fixed rate offerings from lenders. Currently, fixed rates are at 20 year highs. 

Last week, the BoC decided to further increase the prime rate by 0.25%, leaving it at 7.20%. I do not expect to see any rate decreases for variable mortgage holders until mid 2024.

TRIGGER RATES

For those of you with a true variable rate mortgage (where your payments remain the same, but the interest is adjusted vs the amount that goes to principal), you may have received a trigger rate notice from your lender. This is to inform Borrowers of when the payment is no longer covering the interest on your mortgage. Banks will give you three options:

1. Make a lump sum payment to bring amortization back in line
2. Increase your principal and interest payments
3. Convert your mortgage to a fixed rate term equal to or greater than the remainder of your existing mortgage term.

Feel free to contact me if you would like to discuss your options if you have received a trigger rate letter. If you are in an adjustable rate mortgage (where your payments change with each increase or decrease to the prime rate), you do not have to worry about trigger rates. You can still absolutely lock in to a fixed rate at any time though – as long as the new locked in term is equal to or greater than your existing term.

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