There are a few new positives for the BC economy this week. Firstly the issue of trade has finally been resolved with the new US Mexico Canada Agreement (USMCA) which is NAFTA 2.0. Details of the agreement are yet to be fully released however capital markets have responded positively. We expect, based on market reaction and removal of trade uncertainty, that the Bank of Canada will raise its overnight rate by 0.25% when it next meets on October 24th.
In other economic news, it is rumoured that BC’s LNG project which was put on hold in 2016, may be going ahead. Media outlets have reported Shell, Petronas, Malaysia’s Petroliam Nasional Bhd, Mitsubishi Corp., PetroChina Co. and Korea Gas Corp. are preparing to announce their final investment decision this week. The project would invest $40 Billion into the BC Economy, create 10,000 jobs during construction with 950 ongoing after completion and provide the BC Govt. with $22B in tax revenue over 40 years. It remains to be seen if the Green Party will continue to support the BC NDP if the project proceeds. We believe the NDP and Green Party alliance will be tested as the BC NDP has publicly issued support of the LNG project stating they believe their agreed upon 2030 emission targets with the Green Party can still be reached. If the project moves ahead it would represent a huge win for BC and Canada’s investment climate which has suffered reputational damage after the controversy surrounding the Trans Canada Pipeline expansion.
With a new USMCA, the recent Trans Pacific Partnership and European trade deals inked, Canada is well positioned for global trade moving forward.
These news items signify to mortgage holders and homeowners that interest rates are expected to slowly continue climbing. We are in the late stages of the current economic cycle but we do not see anything in the short term that could cause interest rates to reverse recent trends. The US Federal Reserve and Bank of Canada are on a justified tightening cycle. Canada’s high levels of corporate and consumer debt may mean Canada will not be able to increase its overnight rate as rapidly as the US. After October 24th we may see another increase in the overnight rate in December 2018 or early 2019 should economic conditions warrant.
With real estate sales slowing in the luxury segment I wanted to introduce a product some older homeowners have been utilizing -The CHIP Reverse Mortgage provided by Home Equity Bank. A recent news article mentioned that reverse mortgage debt has quietly grown to 3 Billion Dollars in Canada signifying tremendous growth. The plan is available to homeowners over the age of 55 who want either a lump sum or a monthly cash distribution without having to repay the amount or to make monthly payments. The CHIP or Income Advantage products allow folks to stay in their homes and access up to 55% of their equity OAC. Full disclosure, the plan isn’t as generous for 55 year olds where the maximum equity available is roughly 20% of value OAC. A general rule of thumb is that approximately 1% more home equity is available for every year older than 55 OAC. At age 80 approximately 45% of your home’s value would be available OAC. The plan is conservative and is designed to ensure the debt on the home doesn’t appreciate faster than the gain in home equity over time. What’s attractive about this mortgage product is it provides the ability to supplement pension or retirement savings and to stay in a home that continues to appreciate in value. The funds could assist with home care, provide cash to children or grandchildren to help them buy their first homes or provide funds to renovate or to maintain a retirement lifestyle. In the past there were concerns with the cost and flexibility of this type of program. With the introduction of Home Equity Bank in 2009 and the launch of the Income Advantage program in 2013 we have been able to assist many older homeowners achieve their financial goals while staying in their own homes.
If you have questions about rising rates or reverse mortgages we’d love to hear from you!
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