Mortgage 101 – Financial Literacy Month

Dan Ahlstrand and Clinton Wilkins discuss the importance of financial literacy this Financial Literacy Month. They emphasize the need for education on credit, income, and assets, noting that schools often lack this instruction.

Dan Ahlstrand
Wow, it’s the weekend, and I’m here again with my good friend and, of course, our mortgage guru. And that is Clinton Wilkins. This is mortgage 101. This is November. Can you believe we’re here?

Clinton Wilkins
I know November, really, to me, is like the pinnacle of the year, primarily because it is Financial Literacy Month, and it’s one of my favourite months of the year.

<strong>Financial Literacy Month Kickoff</strong>

Dan Ahlstrand
I talked to a lot of financial people, especially Clinton, throughout the course of what I do for a living and and you are the most enthusiastic person when it comes to financial literacy month.

Clinton Wilkins
I know, who knew that personal finance could be so exciting? Who knew that talking about mortgage lending for years on end could be that interesting? No one’s talked more about personal finance, real estate and mortgage lending in general than we have, really, and it’s such a hot topic right now. I think that’s what’s really, really cool.

Dan Ahlstrand
Financial literacy is, is super important. You really if if you don’t understand how things work, if you don’t understand how lending works, how debt works, how credit works, then you are really behind the eight ball, even, even in high school. And once you get out of high school, and you get into post-secondary, and you get off and do your own thing outside of the family home. You if you don’t understand how that works, boy, you’re really in you really are behind.

Clinton Wilkins
They don’t teach personal finance and financial literacy in school? Yeah, they do like to a general level, like when I was going to school, that was a while ago. What we’ll say, really, they were teaching us how to balance a chequebook and how do you write a cheque. Well, nobody’s writing checks anymore. I think what they really need to teach kids is about credit. They need to teach them about income and different income types, and they need to teach them about assets and how to build assets. That’s really, I think, what they need to teach kids in school. And that’s really how I think we’re going to break down our show. Break down our show today. Dan, we’re going to talk about credit, we’re going to talk about income, or we’re going to talk about assets, and we’re going to touch on all of these subjects, and we’ll do a deep dive. It’s a kickoff for Financial Literacy Month.

Dan Ahlstrand
Yeah, you’re going to do a live show with us on the radio near the end of the month, and we’re going to bring some guests in for that, and we’re going to really delve into it. We’re going to take some calls on that as well. I know that you look forward to that, and we’re going to do our very best to try and break some of the stigma that’s around credit and around lending and around debt, because when you hear debt, it’s immediately people think of it as a bad word.

Clinton Wilkins
Yeah, I think that’s certainly a bad word for a lot of people. And I think it’s around, just awareness, yes, debt can be good, but debt can also be bad. It can be good and bad, just depending on what the actual scenario is. But there’s such a low understanding of personal finance in Canada, and Canadians in general have a very high tolerance for indebtedness, which is kind of interesting. Those are probably a little bit correlated, but the one thing that I hope this month brings is for people to sit down at the dinner table and let’s break down some of those barriers. Let’s talk about what’s going on with their credit. Let’s talk about our income. Let’s talk about our assets. When I was growing up, that was taboo. You didn’t want you. My parents didn’t talk about money, and they didn’t talk about income and stuff like that. And, I hope that we are taking some of that stigma out. And I hope things, things like us doing the show, will make it better for people to go have conversations at home.

<strong>Bank of Canada Rate Predictions</strong>

Dan Ahlstrand
Before we get into any of that stuff. Clinton, of course, some news this week. The Bank of Canada has made yet another decision, and has made you look pretty smart. And the reason why I say that is a couple of episodes ago, you sat right next to me and you said, Dan, here’s what’s going to happen. We’re going to see a quarter point drop, a quarter point drop and a quarter point drop. So far, you’re two for two.

Clinton Wilkins
I can very well see that we may see a pause in December. The Bank of Canada meets again on December 10. I’ll predict right now, we’re gonna have a pause, but I will say by January, we will see another 25 basis point drop. So that’s what I am predicting. And let me tell you, a variable rate mortgage is looking pretty darn good right now.

Dan Ahlstrand
For a long time, they weren’t. And yeah, for sure, it’s taken, it’s taken some time for mortgage rates, after we saw that big bump up there right after the pandemic, to kind of stabilize. And now we’re starting to see, although the news is not all good with the Canadian economy, we’re starting to see rates come down.

<strong>Impact of Economic Factors on Mortgage Rates</strong>

Clinton Wilkins
Yeah, I would say there were probably two years or so when a variable rate was more expensive than a fixed rate historically, variable has been less, and it’s been a great decision for Canadians. Right now, it’s going to be back there. Variable rate mortgage, by and large, is going to be less costly than what a consumer could get a fixed rate mortgage at today. Yes, not in every scenario. But, I would say right now it’s on par or less. But I will definitely say that things are moving in the direction that it’s going to continue to go down, and that it will be cheaper to be in a variable rate. But a variable-rate mortgage is not for everyone.

Dan Ahlstrand
That’s an important point, you need to have the risk tolerance, right? There’s, there’s two different there’s a bunch of different products, but two different genres, I’ll call them for mortgages. And they’re a variable and the fixed. The way that I look at it is that if you’re okay with a little bit of risk, if you’re okay with the fluctuations in the market, then the variable mortgage is for you. If you’re not, you want to know how much that payment is going to be for the length of your mortgage, then that’s where the fix makes sense.

Clinton Wilkins
Yeah, the fix, I think, gives the stability. And again, I will give it this rationale, that a lot of consumers right now are not taking a five-year fix, which is historically the most popular. Before the pandemic, 60% of Canadians were taking a five-year fixed rate. Now it’s the numbers are probably even more. Let’s be honest with our clients, about 60% were taking a variable, which was unusual, partially because they were getting the information from us, and they were comfortable with a higher level of risk. That has paid off for a lot of consumers, and obviously not everyone, but for a lot of people, they’ve done very well, because even if we’re looking at two years ago, mortgage rates were six, 7% obviously, if they had a variable, they’re looking again now that the rates are in a four and some are even below 4% which is awesome. My personal mortgage is a variable. I’ve done very well, but you need to have that risk tolerance to say, I’m not going to lose sleep at night, and I’m going to trust inwho iss ever watching this for me and for us, we’re watching it for our customers. We’re letting them know if they need to do something and letting them know if they need to do something which is different, which is really important. I was in Ottawa last week. We had our Canadian mortgage conference, and I sit on the board for Mortgage Professionals Canada, which is our national association. And there were mortgage professionals from across the country there. And there were a bunch of awesome speakers there. Lisa LaFlamme was there. She was kind of the final speaker. It was nice seeing her. I haven’t seen her in a couple of years, since she was the air superstar. And, we also saw Tessa Virtue, Canadian gold medalist and Olympian, and she’s actually working in professional services, like talking to businesses about some tangly issues that they have. But one of the best speakers for me was Benjamin Tall, the chief economist from CIBC, and he is not what you would think of as an economist. He comes out, and he has all the best zingers. And I love some of these zingers. And I was on with you earlier in the week, and one of the things that I said was, and I repeated what Benjamin Tall said. He said, We’re talking about the R word, and the R word sometimes is a bad word and dirty word, I think, for a lot of people, and what he was referring to as recession, and that’s really where we’re at today. And a lot of this was driven by what’s going on south of the border. And he made this analogy, saying that Trump is the Ozempic of the US economy, and that’s having some impacts here at home. And, I think some of the bank account announcements that we had this week, with the key rate going down 25 basis points that are tied to what’s going on in the US. And we probably never talked as much about us, politics and tariffs and everything that we’ve talked about right now, but it’s certainly an interesting time to be alive, and I think it just creates a lot of this kind of angst for people.

<strong>Economic Indicators and Recession Concerns</strong>

Dan Ahlstrand
For those that are not aware, Clinton, there’s there’s a technical definition for the R word for a recession, and that is, it’s what, two quarters of retraction in the economy? Correct?

Clinton Wilkins
Yeah, we’re certainly there right now. Some of the indicators that we look at around GDP and things, we’re looking at the job numbers, obviously, that’s important. We actually have had some job growth., I don’t know if we’re actually creating net new jobs, because I think there have obviously been some job losses as well. We’re also looking at inflation. Inflation is really important in terms of these key drivers around what’s happening with the Bank of Canada. We have seen inflation tick up just a little bit, and I think it’s just a re-normalizing of things like the carbon tax. I think consumers, by and large, see that our goods have become more expensive, but hopefully, we’re back in more of a normal situation now.

Dan Ahlstrand
Obviously, the world revolves around the economy, right? And particularly the lending world, and that’s why we’re seeing some of these reductions at the Bank of Canada, to try and spur some economic growth, to try and rate the ship, so to speak.

Clinton Wilkins
With the rates being lower, yes, it impacts consumers like you and me. It’s lowering our cost of borrowing. If we’re in a variable-rate mortgage, our mortgage payments are going down, or our amortization is getting lower. If we have a home equity line of credit, our cost of borrowing is going down, or any type of credit product that is tied to a primer. Rate, but it will also spur some spending. Probably, some people will buy homes. Some consumers will choose to refinance their mortgage. And, obviously, people are doing mortgage renewals all the time, so having lower rates will spur some of that demand, but it’s also impacting businesses and them going out and getting credit, and the cost of credit and that all comes downstream as well.

Dan Ahlstrand
We’re going to stop and take our first break here on Mortgage 101, as we carry on through this first weekend of November, which is Financial Literacy Month. Clinton and I are going to discuss some of the ins and outs of things like debt and things like credit, and things like assets as part of the program. We’re very glad you’re able to spend some time with us today, and we’re hoping that we can continue right after this break.