Newsletter December 2018

Happy Holidays!

1. Prime Rate remained unchanged in December. When to expect next increase?
2. Forecast on Real Estate prices for 2019.
3. Government increased allowed annual maximum contribution to TFSA to $6,000 in 2019. Manulife Bank is doubling investment interest on new TFSA and RRSP contributions.
4. Two important changes to driving rules in Canada.
5. Our office work schedule for the upcoming holidays.

More details:

1. Prime Rate remained unchanged in December. When to expect next increase?

In December Central Bank of Canada kept the overnight lending rate unchanged and as a result Prime Rate did not change either. Let’s see what can happen next, what do the experts say?
“Bank of Canada’s latest statement marks 90-degree turn” – an article with this title was published in Financial Post on December 7th, 2018. All experts expected rates to remain unchanged, but now they also hear a clear indication by the chair of the bank that there will be no increase in the overnight lending rate in the near future. This statement is complete opposite from the statement made just six weeks ago. The article says that:
First – BoC is no longer of an opinion that the economy is at full capacity.
Second – recent data from Statistics Canada on slowing economic growth, along with world economic growth indicate that there is still a possibility of economic growth without too much influence on inflation, and this does not require immediate increase in lending rates.
This means that the increase in overnight lending rate and the consequently Prime Rate will be moved for a few months. Now the experts believe that the probability of an increase of Prime Rate in January is approximately 10% and 30% in March.
This likely raises a question among many people with a mortgage – is it time to switch from variable rate to fixed rate?
Let’s discuss it together.
First, you are not going to lock in your current variable rate. You will be looking at getting the fixed rate that is currently offered by the bank, approximately 4%. It is important to understand that in this situation the bank has no competition, you are already their client, if you chose to leave you will have to pay a penalty, so you will not receive the best rate. Therefore it is unreasonable to expect to get a very attractive rate on your mortgage.
Second, if you have a significant enough discount on the Prime rate, in my opinion you should not switch to a fixed rate. Even if the rate increases once, twice or three times it is very unlikely to get to an equivalent of the current fixed rate.
Third, if you have a small discount on the Prime Rate or none at all, we recommend you contact us. We will calculate different options on how to get rid of the mortgage with unfavourable rate. You will receive a written copy of our calculations that will show that if you take certain steps, you will likely save a few thousand dollars prior to the end of your current mortgage term.
Fourth, if you are getting a fixed rate mortgage with a large bank, you have to be very careful, penalty on breaking a five year fixed mortgage can be a few times higher than penalty on the variable rate mortgage.
Since we can never predict what will happen in the future I want to again remind you about the “Manage Your Mortgage” program. You can find more information on the following link https://www.totrov.com/en/mortgage-en/manage-your-mortgage/. This program will allow you to get comfort that you have done everything possible to obtain the best rate for the time when you are ready to renew your mortgage.

2. Forecast on Real Estate prices for 2019.

On December 12th, 2018, Financial Post published an article titled, “Home Prices going up at a “snail’s pace”.
Representatives of two large real estate companies have expressed their opinions in this article on price increase in real estate in 2019.

“Royal LePage” company is expecting a growth of approximately 1.2% in Toronto and 1.3% in neighbouring areas, 0.6% in Vancouver and 3% in Montreal.
It appears that such slow growth is attributed to the increasing mortgage rates, unstable world economy and low oil prices.
“Royal LePage” is expecting an increase in sales volume in the coming Spring.
“ReMax” company is expecting the overall growth to be approximately 1.7% in the next year.
They also believe that the real estate market will stabilize in 2019 and demand will continue to be strong. The company is expecting a decline of 3% in price in Vancouver after a 2% growth in 2018.
“ReMax” is expecting the most growth in prices to be in the smaller cities surrounding major populated areas. They believe that prices on real estate in Windsor as much as 10%, in London could go up as much as 5-6%, Oakville – 5%, Ottawa, Mississauga and Brampton – 4%, Barrie – 3%, Toronto – 2%.
The company believes that the current situation in the real estate market is very healthy, as both, the sellers and the buyers understand that there will be no major swings one way or the other.

3.Government increased allowed annual maximum contribution to TFSA to $6,000 in 2019.
Manulife Bank is doubling investment interest on new TFSA and RRSP contributions.

Contribution limit into a very beneficial TFSA (Tax Free Savings Account) program in 2019 has been increased from $5,500 to $6,000. Now, starting 2019, you can contribute up to a total of $63,500 into TFSA. You can find more information about this program on our website https://www.totrov.com/en/tax-free-savings-account-en/.
Manulife Bank is offering 3% annual return on all new contributions into TFSA and RRSP. This is an absolutely open account and the money is not locked in. Up to the end of April, your money will be earning increased interest. You don’t even need to visit our office to open an account, we can send the application by e-mail.

4. Two important changes to driving rules in Canada.

On December 5th, 2018, Financial Post published an article “Saliva test used for first time in roadside checks”.

Mandatory breath screening has been in force since December 18th, 2018. Requesting to undergo such test can now be requested without suspicion of alcoholic intoxication.
Saliva test that will immediately determine use of drugs or alcohol has been introduced this summer, but only now has it been actively implemented after detailed equipment preparation.

5. Our office schedule for the upcoming holidays.

December 24th – office is open until 3 p.m.;
December 25th and 26th – office is closed;
December 28th – office is open until 3 p.m.;
December 29th, 30th, 31st, January 1st and 2nd – office is closed;
Starting January 3rd, our office will be open with regular hours.
If you have an immediate concern that cannot be postponed until the office re-opens you can always contact me on my cell phone at 416-456-7706.

Serguei Totrov
Financial Advisor, CFP, CLU, EPC
Mortgage Broker AMP
(TOP-75 in Canada 2015,2016,2017)
416-222-0533

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