Inflation is Coming! - Make Money Count 003

Inflation is Coming! - Make Money Count 003

how's it going guys um justin and 
marcus here with make money count   um here we are yeah there's been a lot of changes 
in the market recently since we've last met   and uh what's the biggest thing that we're worried 
about i mean rates inflationary inflation yeah so   inflation inflation it's right here today is 
going to be a little more high-end i think   because uh our producer matt actually put 
together like some cool slides yes yeah which   i think are going to be really helpful and we 
got a new lighting we got a new lighting going   on which i do like and the tea is hot hot hot 
well shall we get into it yeah sure let's do it   i guess the first question is um you know 
i guess i guess couple things just so that   everybody understands so what causes inflation and 
and and and you know where do you see this going   so there's there's different measures of inflation 
okay uh the one that the bank of canada and the   central banks around the world most commonly 
track is cpi core price index it's like the   inflation or the increase in price of a 
basket of goods um the situation right now   in canada parallels what's happening pretty 
much all over the world save for the fact that   canada and most of the g7 countries have have 
pumped a lot of capital into the system right   developing nations just typically don't have the 
ability to do that um so we saw it in the states   you see like you know 1.9 million spending bill 
that just got introduced we see it in canada where   um i think we spent uh like 380 billion dollars uh 
so far on um stabilizing the economy so the idea   is is that all of that money that's being um it's 
being printed is going into the economy right now   um it is bolstering people's savings in canada for 
the most part we're seeing a lot of pent-up demand   it is it is eventually going to hit the economy 
and what what we've seen already which is alarming   is a week ago we saw the cpi numbers for 
february uh a month prior we saw january   and we saw inflation of one percent in january 
and we saw 1.1 in february so we're seeing   inflation come into the market at a time 
when we were supposed to be under a lockdown   right it it tells you that there's going to be 
spending spending is coming it's very muted right   now because of people's inability to go out and 
spend on restaurants and uh hotels travel all   these types of things um but it's coming it um we 
can no longer uh assume that it it won't be there   um what that means for canadians is uh if you've 
got a a mortgage right now and you're like most   of the customers we're speaking to they've got a 
mortgage and they've had it for a little while and   they know that they should probably evaluate what 
their options are the sooner they look at that   to opt towards a fixed rate product the 
better a fixed rate they're going to get   it doesn't mean that if you're in a variable rate 
variable rates are going to increase because the   bank of canada has telegraphed to us that interest 
rates as far as they're concerned the overnight   rate that results in our prime rate is going to 
stay the same likely until 2023.

So if you're in   a variable rate mortgage there's no cause for 
alarm you know but just understand that as the   inflationary pressures creep into the market 
and we're already seeing that to some extent interest rates are going to move and 
they're going to move faster than you'd like   especially if what we anticipate is a greater 
inflation than perhaps what the bank of canada   might be accounting for right now and i think 
we're starting to see that so a lot this week   we saw the bank of canada governor come out 
and say that they're going to start scaling   back their asset purchases their bond purchases 
sooner than anticipated so whenever you start   seeing comments like that in a bank of canada 
report or whenever they make a statement like that   they don't want to alarm the market but they are 
saying that maybe things are getting better faster   read inflation's coming to the market faster 
you could probably go crazy watching it on a   daily basis so watching you know bond yields tick 
up or down and it will not be a straight line up   but i i think and we said this once 
before on a podcast a couple months ago   when we should call that up but like i think bond 
yields matt were uh like at 50 basis points on   the five year right yeah yeah we're well over 
a point now right like we're a two over two now   on the five year coming to canada bond deal no way 
we got that we got to come in here so pull it up   pull it up uh but what i'm uh what 
i think we need to be aware of that's not the five year yeah one percent so we 
were at a half a point we're at one percent right   right right so we we just increased 50 basis 
points that is a direct hit to what you're   going to pay on a five-year fixed-rate mortgage 
and i think that if we were to sit down again   in six months you'd see another 50 basis points 
on there right so it's not like you're running   out of time to lock into a five-year fixed rate 
mortgage right you could have saved 50 basis   points if you locked in a little while ago but if 
you were in a variable rate mortgage you enjoyed   the savings of that variable rate mortgage over 
that period of time anyways yeah so the purposes   of our discussion today is really you know what 
direction do you go in do you take a 10-year fixed   or do you take a five-year variable right i mean 
i guess a big question that everyone wants to know   and and you know i myself i'm curious to 
hear about what you have to say about it   it's a question it's a question what do you think 
and obviously they're based on different things   but what do you think the the spread between the 
variable and the fixed is telling you right now   there is no spread the variable the fixed are 
pretty much the same they creeped up a little   bit the fixed rate so like for a refinance five 
year fix right now is like two percent say right   the five-year variable that we can get is like 
1.3 right and six months ago they were both 1.3   pretty much yeah exactly yeah so it's it's telling 
you it's telegraphing to you that that spread that   we just looked at between the 50 basis points 
from six months ago and the one point on the   five-year government of canada yield is creeping 
into the market right and it's telling you that   those fixed rates there's significant pressure 
on them right and you have to understand too   right like the same way um the same factors 
that influence your decision as a consumer   to take that fixed rate those same factors 
influence those pricing the pricing of that   rate it's like a supply and demand thing right 
so the more you start wondering about inflation   and thinking like geez like i really want to go 
and spend some money when restaurants are open   i want to go eat out every night once i can get 
on a flight i'm going to be on one like all those   things that you're starting to think the market's 
starting to think and account for them too   my commentary here is just that i don't think 
there it's accounting for it as much as it   should for canada so i think that that spread is 
probably still tighter than where it should be   right i think five-year fixed rates are going to 
go up i think they're going to go up faster than   people think it's good they're going to go up 
but i also think that like if if you don't do   anything and you sit in a variable rate you're 
not going to necessarily lose out because those   the overnight rate and the prime rate won't 
change right so i think that the decision   as to whether or not you're going to go 10-year 
fixed or 5-year variable is also predicated upon   the timeline you have your time horizon to be 
in that property because as we know the penalty   to break a five-year fix let alone a 10-year 
fixed is rather onerous yeah right like you're   gonna have to pay some money whereas a variable 
you're paying three months worth of interest yeah so the spread is telling you um for sure the 
spread is telling you hey alert alert alert if   you want a five year fixed they're gonna get more 
expensive and that's not to say that like you know   we may see a correction in the stock market in the 
states um which would um drop our five-year fixed   rates right um we could see some uh which i doubt 
but like there'll probably be some type of policy   uh brought in in the you know medium term short 
to medium term from the government um maybe some   type of tax policy um to slow down the housing 
market like maybe some type of capital gains tax   unfortunately nobody wants to hear it but like 
yeah we gotta pay off the 380 billion dollars of   of expenses we just incurred to keep 
the economy going so we could see   some type of tax brought in to slow the housing 
market down and slowing the housing market down   which is like a big piece of the canadian economy 
right now could also have an effect on those rates   so it might not just shoot up right to the moon 
but there is a significant risk especially when   you've got five year fixed rates right now below 
two percent uh like the insured five-year fixed   rate is what the insured five-year fixed one point 
four nine or one point five something crazy it's   crazy it's a little bit higher than that yeah it's 
crazy yeah rates are crazy right now they're still   crazy they're still really low so i think that 
if you're if your idea is to be in a property for   an extended period of time you should look at an 
extended term on your mortgage and lock in a rate   especially if you have multiple properties right 
so there's some real planning that should take   place yeah absolutely yeah we were talking about 
the 10-year fixed yesterday and and it's like   you know in the mid to high twos right so crazy 
it's insane yeah so marcus why don't you tell us   a little bit about how to save money in the next 
two weeks this was in our newsletter everyone's   gonna get it if you haven't gotten it yet 
you're gonna get it soon so right okay so   um there's kind of three what i think anytime 
you're gonna do a mortgage regardless of whether   or not inflation's creeping into the economy 
or not there's there's three kind of components   to what you're doing right number 
one address the elephant in the room   right which is what we deal with on a daily 
basis right yeah i don't even want like i   have one of my mortgages right now that's in a 
variable rate i don't want to bother like it's   a pain i'm going to call cibc i gotta you 
know what i mean i've got to deal with it   address the elephant in the room what we're 
doing at connect with the automation and   with now having two an underwriter and an account 
manager assigned to everyone's every individual's   deal what we've seen already is that the period 
of time it takes us to underwrite and close a   deal has shrunk like yeah almost like on average i 
think we're closer to two weeks now for deals yeah   so i think that the consumer will find that 
with what we've invested in the technology   we can really speed up how we're processing these 
loans and we use a lot of automation document   collection automation so the elephant in the room 
is it's really hard to get a mortgage done um   we're going to talk a little bit about how we're 
making it easier absolutely the second thing is figure out what influencers you have on   the mortgage rate you're gonna have you're gonna 
take right like how risk-averse are you how long   are you gonna be in your house how much money do 
you make how consistent is that money like those   pieces will help you to decide what the product 
you should take are right and name also like   what's the economy doing right which is what we're 
talking about and then the final piece is let's   figure out what the best rate is uh based on your 
analysis of your situation so let's run through it okay so these are what we kind of the top 
three elements elephants that are in the   room number one you dread what the penalty 
to break your mortgage is gonna be uh like   everybody this is not you know this is not 
just one person every single person that   we speak to is saying the same thing what i can 
tell you is that a lot of times all we're doing   is renewing a mortgage with someone's existing 
lender right so your lender wants you to stay   with them for the most part and by simply having 
a broker like connect contact your lender and say   hey we've got other options for your borrower 
we're we're going to move them unless we can   reduce the interest rate on this product you can 
do what's called a blend and extend with a lot   of lenders and you can just reduce your existing 
rate stay with your lender not collect paperwork   and enjoy all the trappings of a new five-year 
fixed rate or variable rate it's totally doable   if your lender plays hardball you can also break 
your mortgage and go somewhere else right you   can and that is like to be clear like all this 
is based on numbers so if you can save money   then you break your mortgage if you can't save 
your money you don't break your mortgage yeah   and in a lot of cases uh if the penalty is 
too high because some lenders have really   crazy policies uh if the penalty is too high we 
simply put you on a calendar and we remind you   120 days before your mortgage matures and we 
move you into new mortgage then yeah exactly   and at least we have all the products available 
at that time ready for you um and then finally   there's a lot of ways to reduce penalties 
right like i love the example of uh you know   you when you're breaking your mortgage you go to 
the person that you are taking the business from   and you say how much should i pay you to move the 
business away from you right the first answer is   going to be wrong they're going to want to charge 
you as much as they can possibly get away with   and in nine nine out of ten cases we're 
able to significantly reduce the penalties   that our borrowers are paying i think that's 
really important so you're gonna get a penalty   that penalty is gonna be scary probably uh 
it's going to be lower than what you anticipate   we're going to be able to save you money 
and if we are then we're going to do a deal   if we're not then we're going to wait 
so that's one elephant that you know   embrace your mortgage penalty understand that 
there's a reason why the canadian banks are   as strong and powerful as they are because they 
charge us fees something i've been also going over   with my clients too is like you know in a market 
that we're in right now where rates are rising   a lot of my clients have a hefty penalty today 
you know we can hold a commitment for 120 days   we can break their mortgage in four months what 
do we think rates are going to be like in four   months right so you know the slimmer the spread 
between what they have and what's being offered   the lower the penalty right it costs nothing 
to lock in a rate right now exactly exactly   we work for free we get paid by the lender so 
you want an interest rate let us lock one in   for you you don't want to do something with it 
don't do anything with it keep it agreed yeah   agreed uh okay what about collecting paperwork 
gives you anxiety what can you say about that   i mean there is a lot of stuff that goes into 
to to to getting a mortgage right but but   we have a software that can help you out um and 
for the most part we get most of these documents   for you right especially the people who are 
self-employed they think oh i gotta run around   i gotta collect this this and that we have systems 
that pull your t4s your notice of assessments from   the cra we you know have good relationships with 
a lot of the people that we work with and we have   we know their accountants stuff like that so we 
can pull most of this information for you right   i think it's like we're at the point right now 
where we could do a mortgage with the borrower   just sending out a few emails and saying like hey 
this is my broker send him the stuff he needs yeah   hr accountant and then banks like the other stuff 
we can pull in an automation right bank statements   tax returns a lot of this stuff is all automated 
now yep so that's that's where this two week time   period comes from like we're closing most of our 
deals within a two week period so okay in the   final point um shopping for the lowest rate sucks 
it does right like shopping for anything like   like like a flight or you know a nice 
brand new dress shirt uh is a painting and   uh what we want you to know is that 
number one the people here at connect   we don't make more money based on the rate that 
you get um we're all on salary so we're just   we're making our salary and our job is to 
make sure that you're getting the absolute   lowest rate on the market and we'll guarantee it 
yeah so if you get a better rate somewhere else   we're going to match it and we're going to 
pay you so um just know that like you know   deuce probably just know that we're going to 
get you the best rate isn't enough shop around a   little bit like before you decide who you're going 
to work with look online figure out what the rates   are you'll see like connect is always if not the 
lowest equal to the lowest rate um like we might   be matched occasionally that happens um but our 
like understand that if we're not the lowest rate   call us and let us know we want to know that and 
we'll adjust yeah exactly um but yeah so i mean   if these are the three anxiety points and then 
what's better is like if you have a comment and   if you're like no wait my biggest anxiety point 
is i can't handle how many times justin calls me   or uh since you're usually like i i'm i'm worried 
because i have to sign with somebody which you   don't you can just docusign it um maybe write 
us yeah in the comments or i don't know matt how   does like what's the what's what are all the kids 
doing these days like what's the interactive way right in the comments matt says okay right in the 
comments right in the comments okay so let's talk   a little bit about the interest rate okay uh 
a couple factors that that come into play when   you're when you're choosing your interest rate we 
have three here again if you if you have more then   we'd love to hear from you but but uh let's start 
from the top so time how long do you keep plan on   keeping your mortgage huge huge point right yeah 
obviously yeah so the amount of time if you're   going to keep your mortgage for the next two or 
three years variable yeah stay variable yeah um   four years may be variable i don't even know 
like even if you're going to keep your mortgage   for five years i don't know if you stay variable 
because think about it right the variable rate is   unlikely to change for two years right so you'd 
be stuck at one point three instead of locking   in at two or whatever one nine whatever you're 
gonna save that 60 basis points 70 basis points   for a 24 month term and then even if interest 
rates do increase you might still be okay   like it might be just like net even and you 
won't be subjected to the penalty to break   a fixed-rate product if you were going to be in 
that home for longer than five years i think it   is time to start pulling out the ten year okay 
uh i honestly like when i saw that it was like   a little more than two and a half percent for a 
10-year product it's crazy i think that the value   of that 10-year product five years from today when 
you will have a basically a five-year fixed-rate   mortgage five years from today at two and a half 
percent yeah uh there'll be i think there'll be a   lot of value in that oh yeah 100 also think about 
it like this right typically mortgage rates are   one and a half percent above bond yields right 
now bond yields are at 100 basis points mortgage   rates are at two percent for a five year fixed 
right so you're still getting a bit of a discount   understand that there's some pressure 
on those rates those are going to go up   so if you can get a two and a half and we just 
saw bonds go up 50 basis points in six months   they go up another one point and we're sitting 
at two percent on the government of canada five   year which is not likely to happen immediately 
um you're like in the money on that product   you probably would be able to get a gic 
for significantly more than what you're   paying on your mortgage yeah okay number two risk 
appetite how much are you willing to risk to save   money with a variable rate mortgage yeah i mean 
like we kind of touched on that right like uh you're gonna save money with a variable 
rate mortgage right like it's rather   enticing the idea of borrowing at one percent 
interest um is is very alluring free money   right um and there's nothing to say that 
you're wrong you you like you listen i   think inflation is going to come faster 
than most i could be wrong right um so there's a lot of things on the way that need to 
happen in order for this inflation to kick in   i just think that the dedication 
that we're seeing from the central   banks and the governments around the 
world to stimulate the economy um   and and and kind of increase asset prices will 
will lead to increased rates like there's no doubt   right um domino effect so uh i think that uh but 
yeah but listen the variable rate might not move   there's another argument that people i've heard 
many smart smart people uh say is that they're the   bank the governments have done so much borrowing 
they've issued so much debt that it's in their   best interest to keep interest rates low to allow 
them to service the debt that they've taken on   right which would continue to overstimulate the 
economy but would also be a really valid argument   for taking a variable rate right because it says 
basically listen the government borrowed money at   the overnight rate they're unlikely to increase 
the overnight rate which results in an increased   prime rate and therefore an increased variable 
rate mortgage so why don't i just stay in the cozy   confines of this variable rate mortgage instead 
of doing anything to associated with switching   over to a fixed rate right yeah big question 
big question okay where is the economy headed   are we going to see 1980s rates anytime soon 
you know what i brought something for this why oh yes and i hid it from you so that like you 
would oh get did the magic eight paul knows   okay so what's your question are we gonna 
see 80s rates anytime soon 1980s raids i think the eight ball's wrong it says outlook 
good oh really yeah oh look good listen um   i don't think you're going to see 
80s rates i'll say 80s rates will   mean like a collapse of some kind yeah like 
it'll be to combat some serious inflation   i don't know how we would deal with 80s rates 
right now so no i think the economy is going to   get better i think it's going to get better on the 
back of a lot of spending like a lot of money is   going to get pumped into the economy um i think 
asset prices are going to continue to increase   uh it's a little worrisome what's happening with 
the canadian housing market right now like it just   seems like everything is exploding in price 
again it's crazy um it's a little stressful   but um i think you can expect like the over my 
my overarching concern the reason why i want   this newsletter out there to our customers 
and anyone else that cares to listen is for   almost 20 years we've got a pretty perfect track 
record of telling people what mortgage to take   yeah if you were to listen to us six months ago 
and gone into a fixed-rate mortgage you would be   laughing at everybody right now with a 1.3 5-year 
fixed rate mortgage yeah uh and i think that   the time to laugh is short the window of the 
of being able to laugh with a really clever   product is probably tightening yeah and soon 
if we get up like if the five year fixed rate   which i think it will goes to two and a half 
percent i'm probably going to switch back to   saying variable because the risks associated with 
locking into that five year at two and a half   i think they outweigh the benefit of the 
variable because again the ch the course   that we're taking isn't charted right like 
it's not for sure that the economy comes   back like that right there's gonna be bumps 
along the way and at each point we could go   could go in the other direction we could have to 
you know we could start increasing interest rates   too quickly and then we could see a need to drop 
interest rates so i'm just saying overall my um my research my instincts are are 
really kind of guiding me towards   wherever possible advising people to take longer 
term fixed rate money all right so the decision   so we've made it past the elephant we made it 
past the rate now the decision it doesn't seem   like we have a flow here i think it's just we 
pick one of these decisions well i think no i   think we got a bit of a flow i think if you are in 
your property for sure for longer than five years   let's take a real look at that 10 year i love 
that 10 year i love that 2.6 for 10-year money   take that take that yeah take it don't worry 
about it worry about some other [ __ ] yeah um   the other thing is is like getting 10-year money 
is just such a it's like an investment instrument   right you're making a bet on the return of the 
economy so you could get like 10-year money and   then buy a put option on the stock market 
right so if the stock market drops you're   going to make some money but because you're going 
to get a little bit screwed on your tenure right   um it's hard for me to say go long-term debt 
right it's hard for me to say that because   i've always been almost always variable there 
have been if you follow our newsletters like   i'm sure absolutely nobody does so i've been 
doing newsletters now for like 16 years okay and   i have recommended five-year fixed rates in the 
past few times yeah i've also recommended one-year   fixed rates i don't know if like you weren't 
it was in 2009 we had this huge correction and the it happened in march as well to a 
lesser extent but the uncertainty of the   market drove up variable rate mortgages 
from prime minus one to prime plus one   and it was going to take a while for the market 
to come back like since 2009 we've seen rates   just kind of like fart up and down a little bit 
but they've been low um you could argue that   we're still dealing with 2009 right now as far 
as like the global economy um and this will help   either exacerbate it or pull us out of 
it like depending on which school you are   of thought on this but uh in 2009 we recommended 
a one year while the dust settled on those   variables and at the time everybody said 
i was crazy they were like like you know   you cannot tell people to take a one-year fixed 
rate mortgage in this environment everybody should   be locking into something rates are going to go 
up variable rates are never gonna go back to being   prime minus one they're all this is the new 
normal does that sound familiar new normal i'm   gonna let everybody in on one little secret here 
the new normal is [ __ ] there is no new normal   history dictates the future the people behave 
the same way there's no new normal this is it   uh so the same thing is going to keep happening 
in the world study history read a few books new   normal [ __ ] [ __ ] [ __ ] they said it was the 
new normal in 2009 there wasn't going to be a new   variable rate below prime minus or prime plus one 
it didn't happen it's back to prime minus one that   certain things will always return to where they 
are and when they aren't where they should be   bet on them to go back it's called 
reversion reversion to the mean   so right now the 10-year rate is not where it 
should be so if you take it you're gonna laugh   in the future yeah you're winning that's all 
i'm saying that's all i'm saying and we got no   we got no horse in the race like i understand 
our motivation for this is to keep running our   business like to keep giving great information 
to all of our customers to keep them interested   in what we're saying and to keep them making money 
and saving money on the back of what we're saying   that's it the better we the better a job 
we do with that the more our business grows   so we want you to save money that's the whole 
reason behind all this that's it motivation all   right guys be sure to like and subscribe i think 
there's going to be a button below wherever you're   watching this or you can double click on this 
if you're on instagram and you can get more tips   and tricks about your mortgage and of course we 
can ask the magic 8-ball some more questions you

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