Canadians hanging on to their savings

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February 2, 2024 by Adam Malik

Canadians hanging on to their savings​


Image credit: Depositphotos.com
Households in Canada have accumulated an unprecedented amount of savings during the pandemic. But unlike the U.S., households here haven’t been drawing down on their savings at the same pace.

Thomas Feltmate, senior economist at TD Bank, noted that Canadians have been much more prudent with their money knowing that they’re facing rising prices all around them — especially as mortgage rates come up for renewal.

“And they’re basically just trying to keep some powder dry, some excess cash for when their mortgage ultimately rolls over and they’re faced with that headwind of a higher cost to service that debt,” he said at the Canadian Black Book Talk Auto 2023 conference.

Since Canadians are not drawing much from their savings, they’re not spending much in the automotive market.

“So I think we are starting to see some pullback on the consumer side of things. This is exactly what the Bank of Canada ultimately wants to see. We need to see weaker consumer spending over the next year or so such that we have further disinflationary pressure coming through,” Feltmate said.

This all comes back to high interest rates and the mortgage renewal shock that is set to play out in the near future.

“So by the end of [2023], we estimate that about 50 per cent of the outstanding stock of mortgages would have rolled over into this higher interest rate environment,” Feltmate reported. “But that still means over the next three years, we have another half of that the stock of mortgages still rolling over.”

Economists are especially focused on the 2025 and 2026 numbers. A lot of these renewals would have been pandemic buyers or those who last had their mortgage reset in 2020 or 2021 at a time when interest rates were at all-time lows.

So even the most optimistic scenario happens where the Bank of Canada has completely returned the interest rate to its typical 2.25 points by mid-2025, mortgage rates in 2025 and 2026 are probably still going to be in around 4-4.5 per cent, Feltmate said.

“And for homeowners or anyone that had their mortgage last reset in 2020 or 2021, when you could get a five-year fixed for 1.7 per cent, that’s going to be a meaningful repayment shock that these households are going to be faced with,” he added.
 

drew562

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February 2, 2024 by Adam Malik

Canadians hanging on to their savings​


Image credit: Depositphotos.com
Households in Canada have accumulated an unprecedented amount of savings during the pandemic. But unlike the U.S., households here haven’t been drawing down on their savings at the same pace.

Thomas Feltmate, senior economist at TD Bank, noted that Canadians have been much more prudent with their money knowing that they’re facing rising prices all around them — especially as mortgage rates come up for renewal.

“And they’re basically just trying to keep some powder dry, some excess cash for when their mortgage ultimately rolls over and they’re faced with that headwind of a higher cost to service that debt,” he said at the Canadian Black Book Talk Auto 2023 conference.

Since Canadians are not drawing much from their savings, they’re not spending much in the automotive market.

“So I think we are starting to see some pullback on the consumer side of things. This is exactly what the Bank of Canada ultimately wants to see. We need to see weaker consumer spending over the next year or so such that we have further disinflationary pressure coming through,” Feltmate said.

This all comes back to high interest rates and the mortgage renewal shock that is set to play out in the near future.

“So by the end of [2023], we estimate that about 50 per cent of the outstanding stock of mortgages would have rolled over into this higher interest rate environment,” Feltmate reported. “But that still means over the next three years, we have another half of that the stock of mortgages still rolling over.”

Economists are especially focused on the 2025 and 2026 numbers. A lot of these renewals would have been pandemic buyers or those who last had their mortgage reset in 2020 or 2021 at a time when interest rates were at all-time lows.

So even the most optimistic scenario happens where the Bank of Canada has completely returned the interest rate to its typical 2.25 points by mid-2025, mortgage rates in 2025 and 2026 are probably still going to be in around 4-4.5 per cent, Feltmate said.

“And for homeowners or anyone that had their mortgage last reset in 2020 or 2021, when you could get a five-year fixed for 1.7 per cent, that’s going to be a meaningful repayment shock that these households are going to be faced with,” he added.
My house in the city. I owe 240k.
mortgage went from $1700 to 3250 without taxes. Thank Christ every single thing we own is bought cash .
 

Bnorth

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Canadians are the most financially illiterate population in the G7. Gorge ourselves on overpriced houses with huge mortgages and instead of planning for increasing interest rates we act like victims when interest rates go up to median range after being at historic lows.
 

drew562

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Canadians are the most financially illiterate population in the G7. Gorge ourselves on overpriced houses with huge mortgages and instead of planning for increasing interest rates we act like victims when interest rates go up to median range after being at historic lows.
I wouldn’t call it median range. my bank last year was gangster. Paid 32,700 in mortgage payments for 12 months. Only
$13,000 came off my principal. If anyone bought a government bank borrowed money and charge that it’ll be over the news and they would be criminally charged. Racketeering.
 

acesup800

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I wouldn’t call it median range. my bank last year was gangster. Paid 32,700 in mortgage payments for 12 months. Only
$13,000 came off my principal. If anyone bought a government bank borrowed money and charge that it’ll be over the news and they would be criminally charged. Racketeering.
I wouldn't call 5-6% racketeering. You know anyone, anywhere that is going to lend you money cheaper?
 

drew562

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I wouldn't call 5-6% racketeering. You know anyone, anywhere that is going to lend you money cheaper?
$20,000 a year interest on $240k is high. 2/3 of the monthly payment going to the lender. Lucky for me I write off a large portion of mortgage interest through my business. If I paid myself more to drop my mortgage faster, I would just pay it all back in income tax Anyways. 🤷‍♂️.
 

sledneck__11

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Should be able to pull personal rrsps without penalty to pay or mortgauge id be way better off pullin them and paying off the house at these intrest rates plus not gaining much on the rrsps anyways
 

ABMax24

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Should be able to pull personal rrsps without penalty to pay or mortgauge id be way better off pullin them and paying off the house at these intrest rates plus not gaining much on the rrsps anyways

Pretty sure pulling RRSPs is just taxed at your marginal tax rate, you can't recontribute that amount after kid a TFSA, but I don't think there is a penalty as such.
 

sledneck__11

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Pretty sure pulling RRSPs is just taxed at your marginal tax rate, you can't recontribute that amount after kid a TFSA, but I don't think there is a penalty as such.
I wish it woulsnt be taxxed as long as u replaced those funds in set amount of years
 

ABMax24

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I wish it woulsnt be taxxed as long as u replaced those funds in set amount of years

I did that with the HBP when I bought my house, I wish I didn't, it screwed me in the end. I make way more now then when I put that money in the RRSP 10 years ago. I would've got a higher tax refund now then I did back then.
 

EldestEldo

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I wouldn’t call it median range. my bank last year was gangster. Paid 32,700 in mortgage payments for 12 months. Only
$13,000 came off my principal. If anyone bought a government bank borrowed money and charge that it’ll be over the news and they would be criminally charged. Racketeering.
That’s how mortgages work, you are paying the interest from your fixed payment before the principal, the more you owe the more the interest is each month and the longer your amortization period the more interest you are paying vs the principal. Interest gets calculated on the balance owing each month. This is why the shortest amortization period you can manage, the less interest you will pay. And if you can make periodic ‘extra’ payments they go straight against principal.
 

drew562

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That’s how mortgages work, you are paying the interest from your fixed payment before the principal, the more you owe the more the interest is each month and the longer your amortization period the more interest you are paying vs the principal. Interest gets calculated on the balance owing each month. This is why the shortest amortization period you can manage, the less interest you will pay. And if you can make periodic ‘extra’ payments they go straight against principal.
I understand. the amount is horrendous. It’s the literally the only loan I have. That’s why borrowing money is a no go for me.
 
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