Is getting a tax refund a sign of poor tax planning?

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Is getting a tax refund a sign of poor tax planning?

By now most of us have filed our tax return. Individual returns were due April 30, while self-employed persons had until June 17 to submit all their paperwork. For many of us, the dread of filing our tax return is often followed by the joy of a big tax refund. But now CIBC says a tax refund is actually a sign of poor financial planning. After all, a refund is your money that you overpaid throughout the year in income tax to the Canada Revenue Agency (CRA.)

But that may be too harsh of a characterization. Even by the results of a CIBC poll on our tax refund situation, the majority of Canadians do get a tax return. Does this mean most of us are bad at tax planning? Now that the anxiety of tax season is behind us, let’s take a closer look and see how we can optimize our taxes for 2019.

Reducing tax at the source

If you have been receiving a large tax refund year after year, and would like that money to stay in your hands, you can ask your employer to deduct the income tax you pay at the source. Do this by completing a one-page T1213 form called Request to Reduce Tax Deductions at Source. You can indicate various deductions or credits that you qualify for that result in a tax refund. You could also do this in a year where you might be making a larger than usual RRSP contribution. Maybe you have room left over from previous years that you want to use now. This does mean that if you make more in overtime or in another job, you may be subject to a tax bill when you file your return. If you find you’re making more money than you anticipated, you have to save accordingly to pay your CRA tax bill.

Invest the money

The CIBC poll found that 63 per cent of us view our tax refund as a “windfall of unexpected money” to put towards our goals. Nothing could be further from the truth. A tax refund is your money that is being returned to you. The CRA has been holding that extra tax you paid, and that money has not been earning any interest for you. If you do get a large refund, the best way to use it is to invest it back into your RRSP. When the money is in your RRSP, make sure to buy an investment that suits your risk tolerance. This does two things: It gets you into the habit of using your tax refund properly and watching it grow in value; and it kickstarts your contributions for next year.

Know your situation

The CIBC poll found that 39 per cent have “no idea” what our tax situation will be until we review our paperwork with an expert. If you are part of this group, change that situation this year. Know what your marginal tax bracket is. That is the income tax you paid on the last dollar you made in 2018. Investigate now all the credits available to you in 2019. For example, there are new credits for people with severe mental impairments to get a service dog; there are credits for those trying to get pregnant using in vitro fertilization; and there are increased credits for capital costs incurred by self-employed workers. By knowing what credits you qualify for, you may be able to plan your year more tax-efficiently.

CIBC called the feeling we get after we receive a refund, “intaxication” – a play on the word intoxication. This may be the case for those of us getting a large refund, but if you use that money for good to pay down debt and invest, then the euphoria you feel from that refund will be worth it.

Rubina Ahmed-Haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney.


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Financial confidence, women and their money

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Financial confidence, women and their money

It doesn’t matter whether you’re single, in a relationship or sharing accommodation, it’s up to you to be fiscally responsible for your own financial situation. It may be a harsh reality, but most females can anticipate being single at some point in their lives, and need to plan their finances accordingly.

Facts and figures

A new book, called Bank On Yourself: Why Every Woman Should Plan Financially to be Single, Even If She Is Not, validates that 90 per cent of women will need to manage their own finances, simply because they chose to remain single, or due to death and divorce.

Co-author, Leslie McCormick, says, “While general financial planning principals can apply to both men and women, what is different are the circumstances that are more likely to impact women financially. Women have longer life expectancies, and the expense those extra years bring, and the wage gap, make it harder to build wealth. Single women need to plan accordingly.”

The tides are changing, but, sadly, there are women who have never managed money for themselves, and relied on a partner to do so – someone else paid the bills and saved for the future.

Pay equity

Although there have been improvements over the last few decades, the wage gap continues to exist, and women make less. Statistics Canada reports, that despite the fact that women make up almost half of the work force (48 per cent), they still make 87 cents for every dollar compared to what a man makes for the same job. And while maternity/ paternity leaves can now be shared, statistically women who work full time, take more time off to have children and care for them. To help make ends meet, women are more likely to take on part time jobs at minimum wage.

Financial literacy

In order to make up for this shortfall in working years and in salary, women need to save more for retirement. The average lifespan of a man in Canada is 79, whereas for women it’s 84. This means that women have to plan for a longer retirement with less money. As a result, women should be saving more during their working years. TIAA, a retirement service provider in the U.S., suggests that for every 10 per cent a man saves, a woman should save 18 per cent of her income, before taxes, to have the same lifestyle as her male counterparts.

Every adult should know how much it costs to run a household – not just the bills and their due dates, but also about budgeting for unexpected costs. The authors of Bank on Yourself, have this advice, “Take your financial inventory, assess your income and expenses. Identify your vision for your future, put a plan in place to make your vision your reality, set your budget, track your progress, review and repeat.”

According to Bank on Yourself, only 31 per cent of women say that they are confident in their financial ability, compared to 80 per cent of men. The Financial Consumer Agency of Canada, and ABC Literacy Canada, provide great resources to help build your financial literacy.

Rubina Ahmed-Haq is a journalist, personal finance expert and HPG’s finance editor. She appears on CBC TV and radio, CTV Your Morning, Global Toronto, and writes for ratesupermarket.ca. Follow her @alwayssavemoney. AlwaysSaveMoney.ca


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How the new government initiative could help condo buyers

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How the new government initiative could help condo buyers

The federal government wants to help you buy your first home. In the 2019 budget, the government unveiled brand new plans that, it says, will help young buyers who have been shut out of the real estate market.

This includes the new First-Time Home Buyer Incentive and the expanding of the ‘Home Buyers’ Plan. Both can be used to buy a condo unit. Here is what you need to know.

Criteria to qualify

The new First-Time Homebuyer Incentive will allow eligible first-time homebuyers to apply to finance a portion of their home purchase through a shared equity mortgage with Canada Mortgage and Housing Corp. (CMHC). Eligibility means you have to have the minimum down payment for an insured mortgage. That is five per cent for a resale home and 10 per cent for a new home. Your household annual income cannot exceed $120,000. Lastly, the insured mortgage cannot be greater than four times the participants’ annual household income. Meaning the mortgage cannot exceed $480,000.

Pay back rules not clear

It’s not clear how much has to be paid back; is it an equal equity share or money borrowed plus interest? Those terms and conditions are expected to be released by CMHC. But the government clearly states that no ongoing payment will be required while you own your first home or still have a mortgage payment on it.

How it claims to help

The thinking is this will lower your overall monthly payments, effectively making your home more affordable to live in then if you had to carry a larger mortgage. Here is an example the federal budget detailed:

If a borrower purchases a new $400,000 home with a five percent down payment and a 10-per-cent CMHC shared equity mortgage ($40,000), the borrower’s total mortgage size would be reduced from $380,000 to $340,000, reducing the borrower’s monthly mortgage costs by as much as $228 per month.

Old program limit increased

Along with this new initiative, the government proposes to increase the Home Buyers’ Plan withdrawal limit from $25,000 to $35,000. First-time homebuyers who have money saved in their RRSP can withdraw that amount without penalty to use towards the down payment on their first home. That money has to be paid back into the RRSP over 15 years. If you borrow the maximum amount you would need to deposit $2,333 a year back into your RRSP. Bear in mind that is on top of all the regular mortgage payments you would be making.

Little to help affordability

Critics say this will do little to help young people in Canada’s most expensive markets such as Toronto and Vancouver, as average home prices are in the seven figures. But these schemes could be advantageous for anyone looking to buy their first condo unit. According to the latest figures from the Toronto Real Estate Board, the average price of a condominium apartment was $558,728 at the end of 2018.

Before the new initiatives were announced in the federal budget, Jason Mercer, TREB’s director of market analysis, said, “The condominium apartment segment continued to be a key entry point into the GTA homeownership market in 2018. Higher mortgage qualification standards meant that many first-time buyers were looking for more affordable housing options.”

If you’re a first-time homebuyer shopping for a condo in that price range, you could be in luck. But for most others, these plans will do little to help Canadians afford to live in the most expensive cities.

Rubina Ahmed-Haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney.


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Cost of living and retirement savings are barriers to homeownership

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Cost of living and retirement savings are barriers to homeownership

Anyone living in a big Canadian city such as Toronto knows the cost of living is high. Everything from basic needs, such as food, clothing and shelter to non-essentials are expensive, and according to a new survey they are also barriers to homeownership for young families.

Basic living costs biggest barrier

Conducted by Sotheby’s International Realty Canada and the Mustel Group, the survey found that “across Canada’s key metropolitan areas, young, urban families identified the cost of covering basic living expenses, such as rent, groceries and utilities, as their leading financial barrier to saving for homeownership.” One third of Canadians surveyed said this was their primary obstacle. In Toronto, the number was slightly higher with 35 per cent saying basic cost of living was keeping them from saving for and owning a home.

But the barriers don’t stop there. Would-be homeowners say even non-essential lifestyle expenses such as dining out, travel, entertainment and fitness memberships were also preventing them from breaking into the real estate market.

Giving up a lot to get there

The report surveyed more than 1,700 families living in Canada’s largest cities, including Toronto, Vancouver, Calgary and Montreal. It focused on families where the heads of the family are between the ages of 20 and 45. The majority, 51 per cent, said they were willing to minimize or reduce non-essential lifestyle spending to reach their real estate ownership goals. This includes cutting out dining out and travel. Many were also willing to give up clothing or technology purchases. To save, more than 37 per cent of families said they have reduced or eliminated health and fitness expenditures. A further 15 per cent say they are reducing if not eliminating car ownership.

Retirement on the back burner

The most concerning finding is one in five homeowners worried that prices will continue to rise are delaying saving for retirement. The implications of this can be significant. The shorter time you save for retirement the shorter time that money has to grow. A 2018 CBIC poll called “Am I saving enough to retire?” found the magic number Canadians needed to retire is $756,000 but they found as many as 90 per cent don’t have a retirement plan. The poll findings also show that almost a third of those nearing, or on the cusp of retirement aged 45 to 64, have nothing saved for their retirement. For those who have saved, the average value of their nest egg is $345,000 – only half as much CIBC says you need to retire.

What is the best decision?

Buying real estate should not come at the cost of ignoring other financial obligations. One easy solution is the look for properties that are less expensive. Condos are often the best choice for first-time homebuyers. If a more expensive property is what you desire, spending more time saving for your down payment will lower your payments when you finally purchase. The reason many young families are willing to sacrifice, is 78 per cent of those surveyed by Sotheby’s and the Mustel Group believe their home will either outperform or match the performance of their financial investments in the next five years. If the last 10 years is an example, that would be true, but it’s important to understand that as interest rates rise, so will the cost of borrowing and that will put downward pressure on home prices, too.

The bottom line? Financial sacrifice is necessary when buying a home in most Canadian urban centres, so plan and prepare.

Rubina ahmed-haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney.


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Till debt do you part, looking for love in all the wrong places?

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Till debt do you part, looking for love in all the wrong places?

Dating can be complicated, especially later in life. You’re probably carrying some extra baggage, which can come in many forms. And, there still might be an ex in the faded picture, as well as children and grandchildren. It can be a difficult world to navigate.

When you’re younger there are any number of reasons of why you might fall for someone. But, when you’re older, you’re hopefully a lot wiser too. In addition to emotional baggage, financial baggage could be holding you back from finding the perfect partner. A personal finance website called Finder, found that 68.5 per cent of Canadian adults say that they would reconsider a relationship based on a person’s financial debt. Baby boomers might be a tad more savvy, as 70 per cent of those surveyed would consider their partner’s debt unacceptable and a roadblock for the relationship to continue.

Deal breaker

Some debt is considered worse than others. The Finder survey found that payday loans were viewed as the least acceptable form of debt. More than 58 per cent of Canadians said that if they found out that their partner was carrying this type of liability, then it would be a deal breaker for them. Pay day loans have notoriously high interest rates, and are often used as a last option to get funds.

Other types of debt that may have your love interest rethinking, also include credit card debt, and money owed to family and friends.

Acceptable debt

Angus Kidman is the editor-in-chief at Finder and he says, “The uncomfortable truth is that the majority of Canadians are turned off by personal debt. Given so many people in relationships aspire to share finances, it’s not surprising that individuals view partner debt unfavourably. In saying that, not all types of debt are equal. Prospective partners are more likely to accept mortgages or business loans.”

These types of loans don’t evoke the same feeling as high-interest debts do. Mortgages or business loans are viewed as ‘good’ debt, as they relate to assets and the potential of increasing your earning capacity.

Indebted romantics

If you’re searching for love, and think that your debt might be holding you back, then your first step is to figure out how you are going to pay it down. Make a plan to cut out the variable spending, and commit to the plan.

Also, sit down and have a serious talk about money with your love interest. If your debt is hindering your relationship, it’s better to find out now, rather than later. You may learn that they, too, have some debt issues that they haven’t been able to discuss, or that they’re very supportive. While honesty is always the best policy, it’s never more important than when dealing with personal finances.

“While it can be difficult to talk about debt, it’s important to have open and honest conversations about the state of your finances to minimize relationship friction,” says Kidman. “You should also have frank discussions about the level of debt you’re willing take on in the future, and the circumstances under which it’s acceptable.”

One of the most common reasons that couples split up has to do with their relationship with money. To get your new relationship off to a good start, it’s best to be open and direct, and make a plan to become debt-free.

Rubina Ahmed-Haq is a journalist, personal finance expert and HPG’s finance editor. She appears on CBC TV and radio, CTV Your Morning, Global Toronto, and writes for ratesupermarket.ca. Follow her @alwayssavemoney. AlwaysSaveMoney.ca


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Variable vs fixed mortgages? It’s complicated

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Variable vs fixed mortgages? It’s complicated

Canadians are now into the busiest season for real estate. More homes change hands during the spring than at any other time of year. One decision homeowners will have to make about their new purchase is the kind of mortgage they will sign up for. Historically, variable rates have saved money, whereas the five-year fixed has provided the stability many conservative homebuyers want.

But that decision is getting complicated. Canada’s biggest bank, RBC, has cut its five-year fixed rate. Several banks, such as TD Bank and BMO Bank of Montreal, have quickly followed and cut their five-year fixed to the same level.

The move by some of Canada’s commercial banks is overdue. Unlike variable rate loans that are affected by the Bank of Canada’s benchmark rate, fixed rates are tied to the bond market. Bond yields have been dropping for the last two months.

Rate savings

The yield for the Government of Canada’s benchmark five-year bond fell from a high of 2.48 per cent on Oct. 5, 2018 to a low of 1.76 per cent on Jan. 3, 2019. This means it’s cheaper for commercial banks to borrow money at a fixed rate. Therefore, they can offer those interest rate savings to their mortgage customers.

The cut to fixed rates has shortened the spread between the variable and fixed rate mortgage. The Bank of Canada usually raises rates by 25 basis points or a 0.25 of a per cent each time. With the BoC hinting at raising rates 2019, one rate hike would mean your variable rate mortgage would become more expensive to service, than if you had locked in at today’s fixed rate.

For the first time in many years Canadian mortgage seekers are faced with a unique challenge. Previously going variable often meant saving money over the long term. Those who had the stomach to handle interest rates going up and down were the perfect candidate for a variable rate mortgage. For those who wanted security of knowing what their payments will look like, the fiveyear fixed has always been popular.

Rock bottom

The other problem is rates have been at rock bottom for so long that for many homebuyers it’s hard to see rates rise anywhere close to normal. But if we look back to before the financial crisis, before rates were slashed to record low levels, the prime rate at commercial banks was 6.25 per cent in July 2007. At that level, rates were considered much more normal.That rate is 2.5 per cent higher than what prime is today.

What new homebuyers and those renewing their mortgage term have to ask themselves is, could I afford this mortgage loan if rates were two to three percentage points higher?

Canadians need to prepare for higher rates, by making lump sum payments and accelerating their regular payments. Take advantage of lower interest rates, and if I was in the market for a mortgage today, I would strongly consider locking into the special fixed rates being offered by banks, because it seems it is almost guaranteed to beat the variable rate in the next five years.

Rubina Ahmed-Haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney.


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Do you marry for love or money?

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Do you marry for love or money?

When we think about a couple getting married, thoughts of romance usually spring to mind. Where did they meet? When did they know they were in love? And how did they get engaged? But a new survey from the U.S. reveals for most couples it’s not romance that’s getting them to the alter, but the financial stability of the person they’re vowing to spend their life with. The Merrill Edge Report asks the question, “Is financial security the new happily ever after?”

In sickness and in wealth

The report by Bank of America Corp.’s Merrill Edge surveyed more than 1,000 people. It found 56 per cent of respondents prefer someone who provides financial security compared to 44 per cent who want to be “head over heels,” in love. There was also very little difference between men and women. Fifty-four per cent of men want financial security and 57 per cent of women want the same. The only generation that prizes romance more, are the youngest respondents, the Gen Zs, born after 1996. They choose love 54 per cent of the time.

This is good news

Canadians are waiting longer to get married. The latest data from Statistics Canada shows, the average age of first marriages is 31 for men and 28 for women. The longer you wait to get married, the more likely it is you’ve built up your net worth. If you already own a condo or any real estate, for example, you have a large financial asset at stake. This is true as well for any retirement savings you’ve built up over the years. The survey, as unromantic as it sounds, is actually encouraging and shows we are being more pragmatic about our financial future before we tie the knot.

We are still avoiding the ‘money talk’

If most of us have finances top of mind when we get married, we should all be taking the steps to talk about our individual money situation before the big day. But bringing up this topic can be awkward. The survey found that while we’re looking to our partners for financial security, we also tight-lipped when it comes to discussing our own finances. Most admit they rarely talk about their debt, their salary, their investments or their spending habits with their soon to spouse, and that has to change.

How to get started

Ideally, you should have the money talk before you get engaged. But at the very least do it before you say “I do.” Make a date with your partner. Ask them to clear their schedule for that time so you can both really focus on what’s important, your collective financial goals. Agree on some questions that need answering, such as: How much debt are you in? What do you bring home every month after taxes? Where do you see yourself living in five years? Are you a risk taker or conservative when it comes to investing? These questions will help get the conversation started.

Be open minded

During that initial conversation and during your relationship, your partner is going to spend money on something you would not choose for yourself. That doesn’t mean they have made a bad money decision, just one that is not a priority to you. If the spending is within reason, and is not putting your household finances in the red, learn to compromise. This doesn’t mean that every purchase they make that’s not in line with your values is ok, but remember you’re still two different people with separate ideas of what valuable is. By accepting that early on, you are bound to have fewer arguments about money in the future. If financial stability is important to you, as it seems to be for the majority of people, the only way to find that is to keep the lines of communication open about your spending and your feelings about theirs.

Rubina Ahmed-Haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney.


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Tax season – the most dreaded time of the year

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Tax season – the most dreaded time of the year

Now that the holiday season is over, Canadians can now look forward to tax season. For many, it’s often a scramble to get their return completed before the deadline, so that they avoid paying any penalties. This year, that date is April 30, 2019. Take a deep breath and get all your ducks in a row, you still have a few months to file with the Canada Revenue Agency (CRA).

Penalties and fees

If you owe money, the CRA starts charging interest on your balance one day after the deadline passes. Many Canadians now file their return online, a method that the CRA supports, and recommends. To file it online means that it is immediately received and there’s a digital record. The CRA has a list of certified software packages and web applications. If you file by mail, you can have a paper tax return mailed to your home. For Canadians with simple tax situations, you can also file by phone.

Get registered

If you haven’t done so already, open a My Account on the CRA website. It’s a secure service for those who file their taxes. You can also use the autofill function in the CRA certified tax preparation software NETFILE, which automatically fills in part of your return, including your information from your T3, T4, and T5 slips.

File no matter what

Even if you’re not expecting a refund, it’s still a good idea to keep the CRA up to date on your income situation. Otherwise payments, such as the Canada child benefit, may be delayed. This also applies for anyone who has zero income. File a return in order to take advantage of all the government tax credits that you are eligible for.

Important tax credits

The Canada caregiver credit provides tax relief to individuals who are caring for a dependant with a mental or physical impairment. In addition, Canadians can now have their disability tax credit application certified by a nurse practitioner. If you need intervention to help conceive a child, there is also a medical expense tax credit for that.

Self-employed tips

If you are self-employed you have until June 17th to file your return this year. However if you have a balance owing to the CRA, it is due by the April 30th deadline. If your income situation changed dramatically this year, and you have been making income tax instalment payments, figure out the balance that you owe by the deadline. With the new CRA Biz App, you can view transactions and pay balances.

Professional advice

Accountants and tax preparation professionals are all working overtime during tax season. If you have questions, the CRA is also a great resource. For Canadians who need help with their tax return, and can’t afford a professional, they may apply to the Community Volunteer Income Tax Program clinic. To see if you’re eligible and to find a clinic near you, visit cra.gc.ca/volunteer.

Reinvest your return

If you’re expecting a refund this year, you may be dreaming about how to spend it. The best thing that you can do with your tax return, is to reinvest it into your RRSP. By doing so, you’re kick starting your retirement savings for 2019, which helps to reduce your overall income for next year. Another option is to use that money to pay down high interest debt. If you are carrying a balance on your credit card, or a line of credit, this money could help you on your way to becoming debt free. Most importantly, get it in on time.

Rubina Ahmed-Haq

Rubina Ahmed-Haq is a journalist, personal finance expert and HPG’s finance editor. She appears on CBC TV and radio, CTV Your Morning, Global Toronto, and writes for ratesupermarket.ca. Follow her @alwayssavemoney. alwayssavemoney.ca


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Bank of Canada

Bank of Canada holds interest rate for now, but hikes still to come

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Bank of Canada holds interest rate for now, but hikes still to come


Bank of Canada

The Bank of Canada held its target for the overnight rate at 1.75 per cent on Jan. 9, where it has been since October 2018, and is lowering its growth forecast this year for Canada and around the world.

After raising the rate three times last year, some experts expected the Bank would do so again, either in late 2018 or early this year.

So, what does this latest non-action mean, and what can Canadian consumers expect in the coming months?

“The Bank gave several reasons for its decision to keep rates steady,” says Rubina Ahmed-Haq, personal finance guru and Homes Publishing columnist. “This includes lower oil prices, a weaker outlook for the global economy and Canada’s economy slowing more than expected.

Weaker investment

“It was a surprise that market pessimism did not come up,” she adds. “Despite stock market volatility making headlines for the last two months, there was no mention of the wild swings investors have been experiencing. The Bank did talk about weaker consumer spending and housing investment. This could be because of Canadian investors watching their portfolios and not feeling as confident in their spending.”

Sill, Ahmed-Haq says, the Bank remains very rosy on Canada’s economy, noting it has performing well overall. In its statement, the Bank says, “Growth has been running close to potential, employment growth has been strong and unemployment is at a 40-year low.” But still not enough to raise rates at this time.

Energy sector a concern

“The energy sector has been a concern for the Bank for some time now, but there seems to be a new focus on the housing sector, especially on the impact of mortgage guidelines changes and the five rate increases that have happened in the past 18 months,” James Laird, co-founder of Ratehub Inc. and President of CanWise Financial mortgage brokerage, told Homes Publishing.

Ahmed-Haq and Laird agree we should still expect higher rates in the coming months.

“The policy interest rate will need to rise over time into a neutral range to achieve the inflation target,” says Ahmed-Haq.

Rate hikes to come

Forecasters are now predicting two rate hikes this year, down from earlier predictions of as many as three rates hikes in 2019.

“The Bank’s moderated outlook in the last two announcements has caused bond yields in Canada to drop lower than any point in 2018,” says Laird. “However, we are yet to see a corresponding decrease in mortgage rates. We would advise consumers to keep a close eye on mortgage rates in coming weeks.”


Highlights from the Bank’s announcement

  • Bank of Canada maintains target for overnight rate at 1.75 per cent
  • Canadian economy performing well overall
  • Employment growth strong
  • Unemployment rate at 40-year low
  • Canadian consumption spending and housing investment weaker than expected
  • Housing markets adjusting to municipal and provincial measures, new mortgage guidelines and higher interest rates
  • Household spending to be dampened by slow growth in oil-producing provinces
  • Real GDP growth forecast at 1.7 per cent for 2019
  • Growth of 2.1 per cent forecast for 2020



Where are interest rates headed in 2019?

Homebuyers undeterred by changes in mortgage landscape

Interest rate hikes may not cost you as much as you think



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Where are interest rates headed in 2019?

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Where are interest rates headed in 2019?

The Bank of Canada has raised interest rates five times since July 2017. As of the Oct. 24 announcement, the overnight lending rate is 1.75 per cent and prime at commercial banks is 3.95 per cent.

Higher rates means money is getting more expensive to borrow and if you have a variable mortgage rate your monthly payments have gone up.

In its latest announcement the Bank of Canada indicated the various reasons they raised rates. This included the finalized trade agreement that replaces NAFTA called the United States Mexico Canada Agreement or USMCA.

In its press release after the announcement the Bank states that the USMCA agreement will help “reduce trade policy uncertainty in North America, which has been an important curb on business confidence and investment.” The trade agreement was the biggest roadblock for the Bank to raise rates. This was evident when they held rates steady for the several past announcements while the U.S. Federal Reserve continued to hike its benchmark rate. Although not always the case, in most instances, if the Fed raises rates, Canada does as well.

The Bank also points to a solid global economic outlook as a reason to hike rates. Here at home it says “The Canadian economy continues to operate close to its potential and the composition of growth is more balanced… Real GDP is projected to grow by 2.1 per cent this year and next before slowing to 1.9 per cent in 2020.”

After the announcement, Bank of Montreal economist Benjamin Reitzes noted that the BoC statement shows, “Policymakers are clearly upbeat on the outlook, and assuming the economy doesn’t face any big speed bumps, expect rates to continue to push higher at least through early 2019.”

BMO economics predicts three rates hikes in 2019. In January, April and July.

So as rates are expected to rise, what costs can Canadians expect to go up?


Anyone with a variable mortgage rate or any loan with a floating rate, like a line of credit, is already seeing their costs rise. Commercial banks usually hike rates as soon as the Central Bank does. If you have a variable rate mortgage on your condominium, you may want to inquire about fixing your rate today. If you’re worried about your affordability, by fixing your rate you will know how much your payments will be for the remainder of the term.

Savings rates

One of the positives of a higher rates is we get better return on the money we’re putting away. This includes money we have in our savings account. Fixed income rates will rise as well and banks are able to offer a higher rate of return on any money you invest with them.

Stronger dollar

A rate hike almost always means our currency gets stronger. This can be great for Canadians travelling abroad as you get more money during currency exchange. But a stronger dollar can spell trouble for companies trying to export their goods and services. The stronger dollar makes it more expensive for any foreign buyer.

Life could cost thousands more

A report by Environics Analytics released after the October rate hike reveals in the long run the interest rate hike could cost Canadians thousands. They say, so far, the effects of higher rates has been limited to short-term debt and variable rate debt. But when fixed rate debt starts to catch up life will get more expensive. They say “the true long-term effect of these interest rate hikes will be approximately $2,516 a year per household or 5.0 per cent of discretionary income.”

The sense from economists is interest rates are expected to rise going into 2019. If you’re concerned you need to stress test your finances, calculate how much your debt would cost if rates were 2 or 3 percentage points higher. If you find that might be unaffordable make the changes now to prepare for what seems to be inevitable.

Rubina Ahmed-Haq is a journalist and personal finance expert. She is HPG’s Finance Editor. She regularly appears on CBC Radio and TV. She is a contributor on CTV Your Morning and Global Toronto. She has a BA from York University, received her post graduate journalism diploma from Humber College and has completed the CSC. Follow her on Twitter @alwayssavemoney


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