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Tag: Interest Rates

  • UK lenders slash mortgages as Bank of England rate cut brings relief to homeowners

    UK lenders slash mortgages as Bank of England rate cut brings relief to homeowners

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    A row of traditional houses on a street in London’s Muswell Hill suburb, located to the north of London, with views of the Canary Wharf on the horizon.

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    LONDON — Britain’s major high street lenders have begun slashing their mortgage rates in a sign that financial pressure on households may be easing after the Bank of England cut interest rates for the first time in over four years.

    HSBC, Santander and Nationwide are among the lenders to have trimmed borrowing costs following the BOE’s decision on Thursday to lower its Bank Rate to 5% from its 16-year high of 5.25%.

    Homeowners on tracker mortgages, which follow the Bank’s base rate, will be the first to benefit from the savings. Barclays, Santander, Metro Bank, Lloyds, Halifax, Nationwide and HSBC all cut repayments costs by 25 basis points shortly after the BOE’s announcement.

    Those on standard variable rates, which typically take effect once a borrower’s tracker or fixed rate deal ends, will also see savings. From September, Santander will trim its SVR from 7.50% to 7.25%, Lloyds from 7.25% to 7.0%, and Halifax from 8.74% to 8.49%.

    Given their more volatile nature, tracker and SVR mortgages remain a relatively niche part of the U.K. mortgage market. Of the 8.39 million outstanding residential mortgages as of Dec. 2023, 643,000 were trackers and 624,000 were SVRs, according to trade body UK Finance.

    However, analysts suggest it may not be long until reductions feed through to the 6.93 million households on fixed rate mortgages. Indeed, last week Nationwide became the first lender since April to offer a sub 4% deal on its five-year fixed rate in anticipation of the BOE’s monetary policy shift.

    “[Borrowers can] expect to see further pricing improvements in fixed rates, as lenders continue to fight hard to gain a share in a very competitive market,” David Hollingworth, associate director at L&C Mortgages, said via email.

    Laura Suter, director of personal finance at AJ Bell, agreed that other lenders “will follow suit” as Thursday’s decision “fires the starting gun” for the BOE’s rate cutting cycle.

    A boost for UK property

    While initial savings for homeowners are set to be minimal — averaging around £28 per month for those on tracker rates, according to Hargreaves Lansdown — the savings are expected to boost confidence that Britain is emerging from its cost of living crisis, with knock on effects for the U.K. housing market.

    “It could persuade more buyers that this is the right kind of market to take a leap of faith and buy,” Sarah Coles, head of personal finance Hargreaves Lansdown, said.

    Savills’ director of research, Emily Williams, said an increase in buyers should lead to an uptick in market activity in the autumn, with price growth expected to total +2.5% this year.

    Still, with the BOE voting to cut rates by a slim 5-4 majority, the future path for rate cuts remains uncertain, and the central bank has warned it will move ahead with caution. As such, some analysts have warned it will be some time yet before more significant savings are fed through to homeowners.

    “The split vote decision among rate setters suggests this was a rather hawkish rate cut, so this policy loosening is unlikely to herald the start of a major interest rate-cutting cycle,” Suren Thiru, economics directors at ICAEW, said via email.

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  • Wall Street says buy stocks that pay dividends with $6 trillion of cash ready to be deployed

    Wall Street says buy stocks that pay dividends with $6 trillion of cash ready to be deployed

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    Getty Images; Chelsea Jia Feng/BI

    • Dividend stocks are set to surge as investors deploy $6 trillion from money-market funds, Bank of America says.

    • Investors could be looking to invest their cash as the Fed gets ready to cut interest rates in September.

    • BMO agrees, and recommends high-yielding stocks including Abbvie, Chevron, and Gilead Sciences.

    Dividend-paying stocks are poised to surge in the second half of the year as investors start to deploy the $6 trillion sitting in money market funds, according to Bank of America.

    Strategist Savita Subramanian called the dividend trade a “pain trade,” meaning the bulk of investors are not properly positioned for the potential upside gains in dividend-paying stocks.

    “Over $6 trillion sits in US money market funds as the Fed is poised to start cutting rates,” Subramanian said in a note this week. “Bond funds have seen record flows YTD, but we see more opportunities within equities for investors searching for yield.”

    There are more than 200 S&P 500 stocks that offer a higher real return potential than the 2% offered by the 10-year Treasury yield, according to the note, and about 75% of those stocks are under-owned by professional investors.

    Some of the highest-yielding S&P 500 companies include Walgreens Boot Alliance, Altria, Verizon, Ford, and AT&T. And while the S&P 500 as a whole offers a dividend yield of about 1.25%, there are nearly 300 S&P 500 stocks that offer a higher yield.

    “Overall, we expect dividends to make up a larger proportion of returns than the outsized price returns and multiple expansion of the past decade,” Subramanian said.

    BMO’s Brian Belski is another Wall Street strategist who expects big gains to be had from dividend paying stocks, especially after their lackluster performance since the October 2022 stock market bottom.

    “We believe these stocks have turned the corner and recent relative strength is likely to persist in the coming months,” Belski said in a note on Tuesday. “With the Fed now likely to cut rates sooner than previously anticipated, the likely drop in longer-term yields in response should provide a boost.”

    Some of the high-paying dividend stocks recommended by Belski include Abbvie, Chevron, Duke Energy, Gilead Sciences, and Pfizer.

    As investors hunt for yield at a time when interest rates are about to fall, dividend-paying stocks could be the underloved area of the stock market that is set to boom.

    The Fed is expected to make its first interest rate cut of the current cycle at its September FOMC meeting.

    Read the original article on Business Insider

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  • The Fed holds interest rates steady. Here’s when a rate cut could happen.

    The Fed holds interest rates steady. Here’s when a rate cut could happen.

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    The Federal Reserve is leaving its benchmark interest rate unchanged, yet policy makers hinted that they are moving closer to a rate cut.

    While members of the Federal Open Market Committee, the central bank’s rate-setting panel, said in a policy statement on Wednesday that they are waiting for for more evidence that inflation is back on track as the economy cools, they  acknowledged progress in taming price increases. 

    The FOMC said they will hold the federal funds rate in a range of 5.25% to 5.5%, leaving it at its highest level in 23 years. The Fed’s announcement, which was widely expected by investors, means the federal funds rate has been parked at that level since July 2023, when the central bank last raised rates. 

    The statement included a few important changes in the Fed’s outlook. For one, the Fed described inflation as “somewhat elevated,” a more moderate description than its June characterization as simply “elevated.” And it stressed its mandate to focus on full employment, as well as taming inflation.

    Although Fed officials had telegraphed their intent to stand pat, Wall Street analysts interpreted the Wednesday statement as opening the door to a cut at the Fed’s next meeting, which will be held from September 17-18. About 9 in 10 economists have penciled in the September meeting for the Fed’s first rate cut since 2020, pointing to inflation that is easing faster than expected. 

    “As expected, the Fed is setting the table for interest rate cuts starting at their next meeting in September,” said Ryan Detrick, chief market strategist at Carson Group, in an email. “The reality is inflation is slowing and the Fed doesn’t need rates this high anymore.”

    When will the Fed cut rates?

    Some on Wall Street still project that the Fed could announced two additional cuts later in 2024, although the central bank has projected just one reduction this year.

    “While the moderation in U.S. data has helped fuel market optimism around Fed cuts, the number of cuts still remains a question mark, with U.S. elections adding to uncertainty,” TD Securities analysts said in a July 26 research note.

    A growing concern is the nation’s labor market, which is showing signs of fading. Job growth has slowed to an average 177,000 a month for the past three months, compared with a three-month average of 275,000 a year ago. 

    The July jobs report will be released on Friday, with economists forecasting payroll gains of 175,000 this month and the unemployment rate holding steady at 4.1%, according to financial data service FactSet.

    Fed officials have said they are seeking to balance the need to keep rates high enough to quash inflation with avoiding a recession. The Fed’s dual mandate is to keep prices stable to ensure maximum employment. 

    At the Fed’s June meeting, Chair Jerome Powell said the central bank is closely monitoring the jobs data, underlining that officials are aware of the risk if they wait too long to cut rates.

    But, he added, the bank sees “gradual cooling — gradual moving toward better balance. We’re monitoring it carefully for signs of something more than that, but we really don’t see that.”

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  • The Federal Reserve sets the stage for a rate cut — here’s what that means for your money

    The Federal Reserve sets the stage for a rate cut — here’s what that means for your money

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    Customer shopping for school supplies with employee restocking shelves, Target store, Queens, New York.

    Lindsey Nicholson | UCG | Universal Images Group | Getty Images

    Now, as the central bank sets the stage to lower interest rates for the first time in years when it meets again in September, consumers may see their borrowing costs start come down as well — some are already.

    The federal funds rate, which the U.S. central bank sets, is the rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the borrowing and savings rates they see every day.

    “The first cut will not make a meaningful difference to people’s pocketbooks but it will be the beginning of a series of rate cuts at the end the of this year and into next year that will,” House said.

    That could bring the the Fed’s benchmark fed funds rate from the current range of 5.25% to 5.50% to below 4% by the end of next year, according to some experts.

    From credit cards and mortgage rates to auto loans and student debt, here’s a look at where those monthly interest expenses stand as we move closer to that initial interest rate cut.

    Credit cards

    Since most credit cards have a variable rate, there’s a direct connection to the Fed’s benchmark. In the wake of the rate hike cycle, the average credit card rate rose from 16.34% in March 2022 to more than 20% today — nearing an all-time high.

    At the same time, with households struggling to keep up with the high cost of living, credit card balances are also higher and more cardholders are carrying debt from month to month or falling behind on payments.

    A recent report from the Philadelphia Federal Reserve showed credit card delinquencies at an all-time high, according to data going back to 2012. Revolving debt balances also reached a new high even as banks reported tightening credit standards and declining new card originations.

    For those paying 20% interest — or more — on a revolving balance, annual percentage rates will start to come down when the Fed cuts rates. But even then they will only ease off extremely high levels, offering little in the way of relief, according to Greg McBride, chief financial analyst at Bankrate.com.

    “Rates are not going to fall fast enough to bail you out of a bad situation,” McBride said.

    The best move for those with credit card debt is to take matters into their own hands, advised Matt Schulz, chief credit analyst at LendingTree.

    “They can do that by getting a 0% balance transfer credit card or a low-interest personal loan or by calling their card issuer and requesting a lower interest rate on a card,” he said. “That works more often that you might think.”

    Mortgage rates

    While 15- and 30-year mortgage rates are fixed and mostly tied to Treasury yields and the economy, they are partly influenced by the Fed’s policy. Home loan rates have already started to fall, largely due to the prospect of a Fed-induced economic slowdown.

    The average rate for a 30-year, fixed-rate mortgage is now just below 7%, according to Bankrate.

    “If we continue to get good news on things like inflation, [mortgage rates] could continue trending downward,” said Jacob Channel, senior economist at LendingTree. “We shouldn’t expect any gargantuan drops in the immediate future, but we might see rates trending back to their 2024 lows over the coming weeks and months,” he said.

    “If all goes really well, we could even end the year with the average rate on a 30-year, fixed mortgage closer to 6% than 6.5% or 7%.”

    At first glance, that might not seem significant, Channel added, but “in mortgage land,” a nearly 50 basis-point drop “is nothing to scoff at.”

    Auto loans

    Auto loans are fixed. However, payments have been getting bigger because the interest rates on new loans are higher, along with rising car prices, resulting in less affordable monthly payments.

    The average rate on a five-year new car loan is now just shy of 8%, according to Bankrate.

    However, here, “the financing is one variable, and it’s frankly one of the smaller variables,” McBride said. For example, a quarter percentage point reduction in rates on a $35,000, five-year loan is $4 a month, he calculated.

    Consumers would benefit more from improving their credit scores, which could pave the way to even better loan terms, McBride said.

    Student loans

    Federal student loan rates are also fixed, so most borrowers aren’t immediately affected by the Fed’s moves. But undergraduate students who took out direct federal student loans for the 2023-24 academic year are paying 5.50%, up from 4.99% in 2022-23 — and the interest rate on federal direct undergraduate loans for the 2024-2025 academic year is 6.53%, the highest rate in at least a decade.

    Private student loans tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means those borrowers are already paying more in interest. How much more, however, varies with the benchmark.

    Savings rates

    While the central bank has no direct influence on deposit rates, the yields tend to be correlated to changes in the target federal funds rate.

    As a result, top-yielding online savings account rates have made significant moves and are now paying as much as 5.5% — well above the rate of inflation, which is a rare win for anyone building up a cash cushion, according to Bankrate’s McBride.

    But those rates will fall once the Fed lowers its benchmark, he added. “If you’ve been considering a certificate of deposit, now is the time to lock it in,” McBride said. “Those yields will not get better, so there is no advantage to waiting.”

    Currently, a top-yielding one-year CD pays more than 5.3%, as good as a high-yield savings account.

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  • Defining a buyer’s market ‘is always a bit tricky,’ real estate expert says: 4 signs to monitor

    Defining a buyer’s market ‘is always a bit tricky,’ real estate expert says: 4 signs to monitor

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    Even as home prices hit new highs, experts say there are signs that the housing market is becoming better for buyers in some locations.

    The median cost of an existing, single-family home in the U.S. was $426,900 in June, a new all-time high, according to the National Association of Realtors. About 3.89 million homes were sold in June, a 5.4% decrease from May, NAR found.

    While mortgage rates have declined from their May peak, borrowing costs remain expensive for buyers. The average 30-year fixed rate mortgage in the U.S. nudged up to 6.78% from 6.77% on Thursday, according to Freddie Mac data via the Federal Reserve.

    Despite those headwinds, some indicators show the housing market is shifting away from a seller’s market.

    That doesn’t mean it’s a buyer’s market — yet: “The term buyer’s market is always a bit tricky to work with,” said Chen Zhao, the economic research lead at Redfin, an online real estate brokerage firm. There are “rules of thumb” to define a buyer’s market, like having more than four months of supply, she said.

    “The market is certainly tilting more towards buyers, I would say maybe it’s coming more into balance,” said Zhao. “Things are better, but they’re not great yet.”

    Orphe Divounguy, a senior economist at Zillow, agreed.

    “We’re still nationwide somewhat in a seller’s market, not a buyer’s market yet,” he said. “However there’s good news for buyers on the horizon.”

    4 signs of ‘a more neutral market’

    There’s still an affordability challenge at large. But those buyers who can certainly afford to purchase, they’re “realizing the pendulum is swinging back slightly in their favor,” said Divounguy. “Things are moving towards a more neutral market,” he said.

    Here are four signs that can help you recognize if the housing market in your area is more in buyers’ favor:

    1. Homes are lingering on the market longer

    As homes sit on the market for longer, buyers might have an opportunity to get a property for under its listed price, Daryl Fairweather, chief economist at Redfin, previously told CNBC.

    About 64.7% of homes that were on the market in June have been listed for at least 30 days, up from 59.6% from a year ago, according to Redfin. Homes are sitting on the market for slightly longer because mortgage rates and prices are still generally high for buyers.

    More from Personal Finance:
    How down payment-assistance programs can help buy a home
    It’s too hot to sell a house. What home sellers can do
    Some renters may be ‘mortgage-ready’ and not know it

    According to Zillow data, homes are on sale for 46 days, compared to 35 days last year and 19 days in 2021, said Divounguy. “So homes are staying on the market for longer.”

    2. Buyers are backing out

    Sdi Productions | E+ | Getty Images

    In some areas, homebuyers are backing out of a home purchase after making it as far as closing.

    About 56,000 home-purchase agreements were canceled in June, Redfin found. Some of those abandoned deals may stem from buyers rethinking their budget and needs.

    “Buyers are getting more and more selective,” Julie Zubiate, a Redfin Premier real estate agent in the San Francisco Bay Area, wrote in the Redfin report. “They’re backing to due to minor issues because the monthly costs associated with buying a home today are just too high to rationalize not getting everything on their must-have list.” 

    “You really don’t think about insurance and taxes,” said Selma Hepp, chief economist at CoreLogic. “Then you get the first estimate from a lender and then you decide to back out.”

    3. Sellers have more competition

    In other cases, buyers might be getting pickier as more listings pop up in their area.

    Total housing inventory registered at the end of June was 1.32 million units, up 3.1% from May and 23.4% from a year ago. Unsold inventory is at a 4.1-month supply, up from 3.7 months in May and 3.1 months a year ago, according to NAR.

    Competition is easing fastest in the South, where all major southern markets except Dallas and Raleigh are either neutral or buyer-friendly, according to the June 2024 Zillow Housing Market Report.

    “With more inventory, that does certainly mean that buyers have more options,” said Hepp, “but that is very regional. And the ones with the most increases in inventories, they’re struggling with other issues.”

    4. Sellers are cutting prices

    For a few years, home sellers have had the advantage of selling their homes for more than they bought it because valuations have skyrocketed, compounded with the fact that homes have been in low supply for so long.

    “Sellers are having to do a little bit more to entice buyers,” said Divounguy. “We see one in four sellers are cutting their prices — the most for any June in the last six years — to try to sway buyers.”

    About one in five, or 19.8%, of homes for sale in June had a price cut, the highest level of any June on record, according to Redfin. That’s up from 14.4% from a year ago.

    Home builders are also trying to attract buyers: About 31% of builders cut prices to increase home sales, up from 29% in June and 25% in May, according to a July 2024 survey by the National Association of Home Builders.

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  • How is the U.S. economy doing?

    How is the U.S. economy doing?

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    How is the U.S. economy doing? – CBS News


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    The U.S. economy grew more than expected in the second quarter of 2024, according to new data, although it is still down compared to the second half of last year. CBS News senior business and tech correspondent Jo Ling Kent breaks down the numbers.

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    Get browser notifications for breaking news, live events, and exclusive reporting.


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  • Making sense of the Bank of Canada interest rate decision on July 24, 2024 – MoneySense

    Making sense of the Bank of Canada interest rate decision on July 24, 2024 – MoneySense

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    What is the Bank of Canada’s interest rate?

    This latest decrease brings the central bank’s rate—which sets the benchmark for Canada’s prime rate and variable-rate borrowing products—to 4.5%.

    Combined with last month’s decrease, the benchmark cost of borrowing in Canada is now down 0.5% and is at its lowest since May 2023.

    What does the rate cut mean? Will the interest rate cuts continue?

    In the immediate aftermath of today’s rate cut, Canada’s prime rate will decrease from 6.95% to 6.7%, with consumer lenders passing that discount onto their prime-based products, including variable mortgage rates and home equity lines of credit (HELOCs).

    While the outcome of today’s BoC announcement was expected—markets had priced in an 80% chance of a cut—the language in the central bank’s news release was surprisingly cheerful. The central bank usually keeps its cards close to its chest in terms of future cuts, but it wasn’t afraid to come across more dovish today, pointing to the progress made thus far on inflation.

    It noted its preferred Consumer Price Index (CPI) “core measures” (called the CPI trim and median) have both trended under 3% in the last few months. The BoC also suggested that inflation will settle around 2%—the target the central bank wants to see—by 2025.

    That translates to more cuts to come. The question now, though, is whether another quarter-point cut will come in September and/or December. And, of course, just how many more cuts will come in 2025. 

    Currently, analysts believe the BoC’s cutting cycle will bottom out at 3%, which would require another six quarter-point cuts. 

    Of course, the BoC maintains that future cuts will depend heavily on inflation, stating, “Monetary policy decisions will be guided by incoming information and our assessment of their implications for the inflation outlook.” That means the markets will be watching upcoming CPI reports like a hawk. 

    What does the BoC rate announcement mean to you?

    …if you’re a mortgage borrower

    Renewing or borrowing, this is good news for Canadian home owners.

    The impact on variable-rate mortgages

    If you’ve stuck it out this far with a variable mortgage rate, you’re being rewarded today. As a result of today’s rate cut, your mortgage rate and payment will lower in kind immediately, if you’re in an adjustable-rate mortgage. If you’ve got a variable mortgage rate with a fixed payment schedule, more of your payment will now go toward your principal mortgage balance, rather than servicing interest.

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  • Trump Victory Could Ignite Massive Refinance Boom And Record Home Sales, Experts Say

    Trump Victory Could Ignite Massive Refinance Boom And Record Home Sales, Experts Say

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    Trump Victory Could Ignite Massive Refinance Boom And Record Home Sales, Experts Say

    Many Americans, who are generally not satisfied with today’s economy, are focusing on the 2024 presidential election. The U.S. real estate industry and many other sectors are speculating on the implications of a potential second term for Donald Trump.

    Many economists have considered what a second presidential term under Trump would mean. They’ve provided insight on everything from interest rates and tax cuts to housing prices and inflation.

    Don’t Miss:

    Marty Harlee, president and CEO of First Trust Financial, said he expects Trump to recommend to the Federal Reserve that it lower interest rates to keep the economy moving quickly.

    “If former President Donald Trump should win the upcoming election, we would see another massive refinance boom along with a record number of home sales,” Harlee told GOBankingRates. “Lowering rates would move every other industry upward as well.”

    Dennis Shirshikov, a professor of finance, economics, and accounting at the City University of New York, said that the Trump administration’s economic policies would likely focus on deregulation and tax cuts. These could stimulate economic growth and increase disposable income for many Americans. They could also benefit the housing market by increasing demand for homes.

    “For instance, the Tax Cuts and Jobs Act of 2017, which Trump signed into law during his first term, led to an increase in after-tax income for many individuals and businesses, providing more capital for home purchases and investments in real estate,” Shirshikov said.

    Trending: This Jeff Bezos-backed startup will allow you to become a landlord in just 10 minutes, and you only need $100.

    With the rising cost of living and affordability among the major concerns many Americans have, housing and construction are being discussed more in the political arena, said Kateryna Odarchenko, a political strategist who also has a real estate license in Maryland.

    “Donald Trump’s 2024 campaign includes several initiatives related to the housing market and construction sector, building on the policies from his previous term,” Odarchenko said.

    During his first term, Trump worked on increasing homeownership rates, extending eviction moratoriums during the pandemic, and proposing the privatization of Fannie Mae and Freddie Mac.

    “These efforts have implications for future homebuyers and the housing market at large,” Odarchenko said. “His administration also introduced tax reforms such as opportunity zones to stimulate investment in underdeveloped areas and capped property, income and sales tax deductions, affecting homeowners differently across the country.”

    Trending: Commercial real estate has historically outperformed the stock market, and this platform allows individuals to invest in commercial real estate with as little as $5,000 offering a 12% target yield.

    If Trump is reelected, the real estate market could suffer. If rates come down, housing prices will increase, and the available supply will decline, Harlee said.

    “In general, interest rates and the housing market always do well with Republicans in office,” Harlee said. “I think it’s safe to say the same would be true if Trump wins reelection.”

    Shirshikov said that deregulation and tax cuts can stimulate economic activity. Still, they can also lead to inflation, which could cause the Federal Reserve to raise interest rates to control it. That may make mortgages more expensive and reduce housing affordability.

    “Trump’s tenure was marked by significant market volatility, partly due to his unconventional approach to policy and communication,” he said. “This unpredictability can create uncertainty in the housing market, causing potential buyers and investors to hesitate.”

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    This article Trump Victory Could Ignite Massive Refinance Boom And Record Home Sales, Experts Say originally appeared on Benzinga.com

    © 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.

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  • 3 money moves to make ahead of the Federal Reserve’s first rate cut in years

    3 money moves to make ahead of the Federal Reserve’s first rate cut in years

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    Recent signs that inflation is easing have paved the way for the Federal Reserve to start lowering interest rates as soon as this fall.

    The consumer price index, a key inflation gauge, dipped in June for the first time in more than four years, the Labor Department reported last week.

    “With abundant signs of a cooling economy, the consumer price index for June certainly constitutes the ‘more good data’ on inflation that Fed Chair Jerome Powell has said we need to see before the Fed can begin cutting interest rates,” said Greg McBride, chief financial analyst at Bankrate.com.

    With a fall rate cut looking more likely now, households may finally get some relief from the sky-high borrowing costs that followed the most recent series of interest rate hikes, which took the Fed’s benchmark rate to the highest level in decades.

    More from Personal Finance:
    High inflation is largely not Biden’s or Trump’s fault, economists say
    Why housing inflation is still stubbornly high
    More Americans are struggling even as inflation cools

    Fed officials signaled they expect to reduce its benchmark rate once in 2024 and four additional times in 2025.

    The federal funds rate, which is set by the U.S. central bank, is the interest rate at which banks borrow and lend to one another overnight. Although that’s not the rate consumers pay, the Fed’s moves still affect the rates they see every day on things such as private student loans and credit cards.

    “If you are a consumer, now is the time to say, what does my spending look like? Where would my money grow the most and what options do I have?” said Leslie Tayne, an attorney specializing in debt relief at Tayne Law in New York and author of “Life & Debt.”

    Here are three key strategies to consider:

    1. Watch your variable-rate debt

    With a rate cut, the prime rate lowers, too, and the interest rates on variable-rate debt — such as credit cards, adjustable-rate mortgages and some private student loans — are likely to follow, reducing your monthly payments.

    For example, credit card holders could see a reduction in their annual percentage yield, or APR, within a billing cycle or two. But even then, APRs will only ease off extremely high levels.

    Rather than wait for a small adjustment in the months ahead, borrowers could switch now to a zero-interest balance transfer credit card or consolidate and pay off high-interest credit cards with a personal loan, Tayne said.

    Olga Rolenko | Moment | Getty Images

    Many homeowners with ARMs, which are pegged to a variety of indexes such as the prime rate, Libor or the 11th District Cost of Funds, may see their interest rate go down as well — although not immediately as ARMs generally reset just once a year.

    In the meantime, there are fewer options to provide homeowners with extra breathing room. “Your better move may be waiting to refinance,” McBride said.

    Private student loans also tend to have a variable rate tied to the prime, Treasury bill or another rate index, which means once the Fed starts cutting interest rates, the interest rates on those private student loans will start dropping.

    Eventually, borrowers with existing variable-rate private student loans may also be able to refinance into a less expensive fixed-rate loan, according to higher education expert Mark Kantrowitz. 

    Currently, the fixed rates on a private refinance are as low as 5% and as high as 11%, Kantrowitz said.

    2. Lock in savings rates

    While borrowing will become less expensive, those lower interest rates will hurt savers. 

    Since rates on online savings accounts, money market accounts and certificates of deposit are all poised to go down, experts say this is the time to lock in some of the highest returns in decades.

    For now, top-yielding online savings accounts and one-year CDs are paying more than 5% — well above the rate of inflation.

    The opportunity to earn 5% annually on those cash investments may not last much longer.

    Howard Hook

    wealth advisor with EKS Associates

    “One thing you may want to do is consider investing any idle cash you have into a higher-yielding money market fund,” said certified financial planner Howard Hook, a senior wealth advisor at EKS Associates in Princeton, New Jersey.

    “Money market brokerage accounts usually pay higher rates than money market or savings accounts at banks,” he said in an emailed statement. “If the Fed is indeed looking to reduce rates five times over the next eighteen months (as currently projected), then the opportunity to earn 5% annually on those cash investments may not last much longer.”

    3. Put off large purchases

    If you’re planning a major purchase, like a home or car, then it may pay to wait, since lower interest rates could reduce the cost of financing down the road.

    “Timing your purchase to coincide with lower rates can save money over the life of the loan,” Tayne said.

    Although mortgage rates are fixed and tied to Treasury yields and the economy, they’ve already started to come down from recent highs, largely due to the prospect of a Fed-induced economic slowdown. The average rate for a 30-year, fixed-rate mortgage is now just above 7%, according to Bankrate.

    However, lower mortgage rates could also boost homebuying demand, which would push prices higher, McBride said. “If lower mortgage rates lead to a surge in prices, that’s going to offset the affordability benefit for would-be buyers.”

    When it comes to auto loans, there’s no question inflation has hit financing costs — and vehicle prices — hard. The average rate on a five-year new car loan is now nearly 8%, according to Bankrate.

    But in this case, “the financing is one variable, and it’s frankly one of the smaller variables,” McBride said. For example, a quarter percentage point reduction in rates on a $35,000, five-year loan is $4 a month, he calculated.

    In this case, and in many other situations as well, consumers would benefit more from improving their credit scores, which could pave the way to even better loan terms, McBride said.

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  • Buying into Charlie Scharf’s 5-year turnaround plan for Wells Fargo just got a bit cheaper

    Buying into Charlie Scharf’s 5-year turnaround plan for Wells Fargo just got a bit cheaper

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    Charlie Scharf, CEO, Wells Fargo, speaks during the Milken Institute Global Conference in Beverly Hills, California on May 2, 2023. speaks during the Milken Institute Global Conference in Beverly Hills, California on May 2, 2023. 

    Patrick T. Fallon | Afp | Getty Images

    When Charlie Scharf took the reins at Wells Fargo five years ago, the bank was in turmoil. A series of scandals landed it in the regulatory doghouse — dealing a major blow to the 172-year-old firm’s reputation and leading to a multi-billion-dollar plunge in its stock market value.

    Fast forward to 2024: Wells Fargo looks like a different bank altogether — and despite Friday’s post-earnings decline, the turnaround is still humming.

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  • ARK Investment’s Cathie Wood defends strategy in letter to investors

    ARK Investment’s Cathie Wood defends strategy in letter to investors

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    By Suzanne McGee

    (Reuters) – Cathie Wood, founder and CEO of ARK Investment Management, defended the strategy of the firm’s money-losing flagship fund, telling investors in a letter released late on Wednesday that its fortunes will reverse when interest rates fall.

    The ARK Innovation ETF fund has taken investors on a rollercoaster ride in recent years. After a 67.6% gain in 2023, the ETF is down more than 12% so far this year. That compares to a gain of 16.9% for the S&P 500 index so far in 2024, closing above 5,600 for the first time Wednesday.

    ARK’s ETF, meanwhile, has seen net outflows of more than $1.8 billion in the last six months, according to data from VettaFi.

    In a letter posted on ARK’s website, Wood wrote she fully acknowledged “the macro environment and some stock picks have challenged our recent performance.” Nonetheless, she added, “our conviction in and commitment to investing in disruptive innovation have not wavered.”

    ARK’s top investments as of May 31 were Tesla, Coinbase and Roku, according to LSEG data.

    Wood argued many of the fund’s holdings were now in “rare, deep value territory” and poised to benefit disproportionately once interest rate cuts begin. She anticipated another blockbuster period for returns that would resemble the fund’s 152.8% gains during the initial stages of the coronavirus pandemic.

    “Exiting our strategies now would crystallize losses that lower interest rates and reversions to the mean should transform into meaningful profits during the next few years,” Wood wrote. “We are resolute!”

    ARK did not respond immediately to a request for further comment on the letter.

    Morningstar, the Chicago-based investment analysis company, earlier this year calculated that ARK’s losses had destroyed $14.3 billion in shareholder value in the 10 years ended December 31, 2023. ARK and Wood did not respond to requests for comment on that report.

    Wood believes a key to future returns will lie in artificial intelligence-related investments – but not necessarily in market darling Nvidia and other megacaps.

    In the letter, she said she expected to see “a more diverse set of winners to which the current equity market concentration should give way.”

    (Reporting by Suzanne McGee; Editing by Jamie Freed)

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  • Is it a good time to buy a new car? – MoneySense

    Is it a good time to buy a new car? – MoneySense

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    Sticker prices at dealerships have started to come down and affordability is improving, said Daniel Ross, senior manager of industry insights with Canadian Black Book.

    “The new car market is normalizing faster than the used car market,” he said. “You have the inventory, you have the incentives depending on where you’re shopping and if you were a new car shopper from the beginning, it’s the best situation you’ve had in a long time.”

    Inventory of new cars has built up across the country as prices for newer models climbed and consumers pulled back on big purchases amid high inflation and rising interest rates. Now, manufacturers and dealerships have launched incentives and rebates as they look to clear that supply.

    On new cars, dealerships can offer internal financing from manufacturers and control the rates independently from bank rates, said Sam Fiorani, vice-president of global vehicle forecasting at AutoForecast Solutions.

    “Instead of offering rebates, they lower interest rates which make deals better for the consumer.”

    How availability impacts car loan interest rates

    Homeowners are watching the Bank of Canada’s every move as they hope for lower borrowing rates, but a vehicle purchase works somewhat differently, said Shari Prymak, a senior consultant at non-profit Car Help Canada. When financing through a dealership, the interest rate depends on the given make or model.

    “The rates that the manufacturer sets are mainly tied to the vehicle availability,” he said.

    “If the vehicles have a very good supply, they’ll incentivize the interest rates and bring down the rates,” Prymak said. “But if the vehicle doesn’t have any supply, if it has a long waiting period, because it’s in short supply, the rates won’t be incentivized.”

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  • Federal Reserve’s Powell says “more good data” could open door to interest rate cuts

    Federal Reserve’s Powell says “more good data” could open door to interest rate cuts

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    Federal Reserve Chair Jerome Powell said Tuesday that “more good data” could open the door to interest rate cuts, citing recent reports that show that the labor market and inflation are continuing to cool. 

    The central bank left its benchmark interest rate unchanged at its June meeting, and penciled in only one rate cut in 2024 versus its previous forecast of three cuts this year, after digesting data showing inflation remains stubbornly high. Following a flurry of rate hikes, the Fed’s federal fund rate since July of 2023 has remained in a range of 5.25% to 5.5% — the highest in 23 years.

    Speaking Tuesday morning at a Senate Banking Committee hearing, Powell stressed that the central bank wants to see further progress in bringing the annual inflation rate to about 2% before cutting rates, with the most recent consumer price index at 3.3%. But the chair also noted that the Fed is concerned with the risks of waiting too long to cut rates, noting that “elevated inflation is not the only risk we face.”

    The next “likely direction seems to be …. that we loosen policy at the right moment,” Powell said at the hearing, adding that he believed it would be unlikely for the Fed to increase rates. 

    Recent economic indicators suggest “that conditions have returned to about where they stood on the eve of the pandemic: strong, but not overheated,” Powell added. 

    Powell’s comments suggest “a September interest rate cut remains very much in play,” noted Capital Economics in a Tuesday research note.

    Recent economic data shows some signs of cooling. For instance, the jobless rate, while is still low, has increased slightly to 4.1% in June, while payroll job gains averaged about 222,000 per month in the first six months of 2024, he added. The jobs-to-workers gap has declined from a pandemic peak and now is at about its 2019 level, Powell noted. 

    The next big piece of economic data the Fed will digest arrives on Thursday with the release of the June consumer price index. Economists expect that inflation rose at a 3.1% annual rate last month, according to financial data firm FactSet. 

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  • This bank just boosted its 1-year CD yield to more than 5%, even as traders await Fed rate cuts

    This bank just boosted its 1-year CD yield to more than 5%, even as traders await Fed rate cuts

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  • Asset classes like public real estate and bonds could snap back ‘really quickly,’ says investment advisor

    Asset classes like public real estate and bonds could snap back ‘really quickly,’ says investment advisor

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    Share

    Jimmy Lee of The Wealth Consulting Group discusses how investors should position themselves ahead of investment flows broadening, and says that geopolitics, not domestic politics, remains the top risk in his mind.

    02:53

    Tue, Jul 2 20242:34 AM EDT

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  • CNBC Daily Open: U.S. seeks Boeing guilty plea

    CNBC Daily Open: U.S. seeks Boeing guilty plea

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    The Dow Jones Industrial Average rose about 3.8% in the first six months of the year, lagging way behind the Nasdaq, up 18.1%, and the S&P 500, which jumped 14.5% — as investors plowed into artificial intelligence-related stocks.

    Brendan Mcdermid | Reuters

    This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

    What you need to know today

    Dow lags tech rally 
    The     Dow Jones Industrial Average rose about 3.8% in the first six months of the year, lagging way behind the Nasdaq, up 18.1%, and the S&P 500, which jumped 14.5% — as investors plowed into artificial intelligence-related stocks. On Friday, the S&P 500 and Nasdaq hit record highs before pulling back. The yield on the 10-year Treasury rose as investors digested the latest inflation data. U.S. oil prices rose for the third straight week amid fears of a war between Israel and the Iran-backed militia Hezbollah.

    Boeing ‘guilty plea’ 
    U.S. prosecutors plan to seek a guilty plea from Boeing over a charge related to two fatal 737 Max crashes in 2018 and 2019, attorneys for the victims’ family members said. The Justice Department is reviewing whether Boeing violated a 2021 settlement that shielded the company from federal charges. Boeing agreed then to pay a $2.5 billion penalty for a conspiracy charge tied to the crashes. The DOJ revisited the agreement after a door panel blew out of a new 737 Max 9 in January, sparking a new safety crisis.

    Under fire
    Nike CEO John Donahoe faces growing discontent as the company’s stock plummeted 20% on Friday, its worst day since 1980, after forecasting a significant decline in sales. As Wall Street digested the dismal outlook from the world’s largest sportswear company, at least six investment banks downgraded Nike’s stock. Analysts at Morgan Stanley and Stifel took it a step further, specifically calling the company’s management into question.

    Bitcoin windfall
    Mt. Gox, a bankrupt Japanese bitcoin exchange, is set to repay creditors nearly $9 billion worth of Bitcoin following a 2011 hack. The court-appointed trustee overseeing the exchange’s bankruptcy proceedings said distributions to the firm’s roughly 20,000 creditors would begin this month. The payout is likely to be a windfall for those who waited a decade, with Bitcoin’s value surging from around $600 in 2014 to over $60,000 today. One claimant, Gregory Greene, could potentially receive $2.5 million for his $25,000 investment.

    Inflation cooling
    A key inflation measure, watched closely by the Federal Reserve, slowed to its lowest annual rate in over three years in May, with the core personal consumption expenditures price index rising 2.6% from a year ago. “This is just additional news that monetary policy is working, inflation is gradually cooling,” San Francisco Fed President Mary Daly told CNBC’s Andrew Ross Sorkin during a “Squawk Box” interview. “That’s a relief for businesses and households who have been struggling with persistently high inflation. It’s good news for how policy is working.”

    [PRO] Rally will broaden
    The tech sector has driven market performance in 2024, with the S&P 500 tech group up 28% and Nvidia soaring 149%, while small-caps have lagged. Oppenheimer’s chief market strategist John Stoltzfus believes the rally will broaden. CNBC’s Lisa Kailai Han looks at the reasons behind his call. 

    The bottom line

    The New York Times editorial board has lost faith in President Joe Biden, calling for him to step aside. Iranians will need another go at electing a new president, French voters cast their votes in the first round of snap elections that saw big gains for Marie Le Pen's far-right party and Brits will go to the polls on Thursday.

    It's a busy political environment for markets to navigate. Wall Street has shown remarkable resilience thanks to the AI-powered rally in the first half of the year, which has seen the Nasdaq soar 18% so far. Nvidia is up almost 150%. There could be more to come; Bank of America believes Nvidia and Apple could still deliver "superior returns."

    While one of the biggest bulls on the Street expects the rally to broaden away from the megacaps, Wall Street wasn't feeling any love for Nike's CEO. The company had its worst day of trading since its IPO in December 1980, losing $28 billion in market cap on Friday after slashing its sales forecasts.

    John Donahoe was brought in from eBay to transform the athletic apparel giant's digital channels. The company ditched its retail partners, became too dependent on its aging sneaker ranges and lost ground to new contenders Hoka and On. It'll certainly make an interesting case study for MBA programs for all the wrong reasons. As Wall Street questioned Donahoe's position, he still had the approval of its founder.

    Friday also saw the Fed's favored inflation measure come in line with expectations, raising the prospect of interest rate cuts later this year.

    "I really think the Fed should tee up a cut at the July 31 meeting, confirm it at Jackson Hole in August and do it in September," Wharton finance professor Jeremy Siegel told CNBC's "Squawk on the Street." He added that one or maybe one-and-a-half rate cuts have already been priced in.

    "I actually think there will be more because there might be a little bit more softness in the economy and better inflation numbers, both of those feeding better rates," he continued. Siegel also said it is "hard to say" where the bull market's trajectory currently stands.

    In a four-day trading week — markets are closed for the July 4 Independence Day holiday — the big economic number to watch is the June jobless data on Friday. CNBC's Sarah Min has more on what to expect.

     — CNBC's Lisa Kailai Han, Yun Li, Jeff Cox, Leslie Josephs, Gabrielle Fonrouge, Hakyung Kim, Brian Evans, Spencer Kimball, Ryan Browne and MacKenzie Sigalos contributed to this report.

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  • Selling a home is expensive, too: Homeowners typically spend nearly $55,000, report finds

    Selling a home is expensive, too: Homeowners typically spend nearly $55,000, report finds

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    Buying a home and maintaining it is expensive, but selling it is costly, too, according to a new report.

    It typically costs $54,616 to sell a house in 2024, according to a June 17 report from Clever Real Estate. Almost half of surveyed home sellers, or 42%, said their costs to sell were higher than expected, the report found.

    “When people think about selling their home, they’re thinking about how much money they’re going to make from their home sale, and not how much they’re going to spend,” said Jaime Dunaway-Seale, data writer at Clever Real Estate.

    “That cost does end up being very high and then they’re caught off guard and disappointed because that’s going to take a cut out of their profit,” Dunaway-Seale said.

    In May, Clever Real Estate polled 1,014 Americans who sold a home between 2022 and 2024 about their attitudes related to the home-selling process. It also conducted an analysis of seller costs based on median real estate prices in May.

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    About 39% of the total cost — $21,603 — is spent on real estate agent commissions, according to the report.

    However, as a landmark case involving real estate agent commission fees will soon take effect, sellers will no longer be required to pick up the entire tab. If a seller decides not to pay the buyer’s real estate agent’s commission, it could “drop their cost by about $10,000,” Dunaway-Seale said.

    Other typical expenses include doing some home repairs both ahead of the listing and in response to inspections, which Clever Real Estate estimates to cost $10,000; closing costs ($8,000); buyer concessions, or expenses the seller agrees to pay for the buyer to reduce upfront purchase costs, ($7,200); moving costs ($3,250); marketing and advertising costs ($2,300); and staging costs ($2,263).

    But home sellers should focus on “maximizing the efficiency of the transaction,” and “not just trying to save on costs,” said Mark Hamrick, senior analyst at Bankrate. 

    “Ultimately, [with] many of these fees, there’s no harm in trying to negotiate, and that includes real estate commissions,” Hamrick said.

    ‘There are plenty of costs involved’

    Cost-constrained homebuyers in today’s housing market do not want to inherit homes in need of renovations, according to the Clever Real Estate report.

    “There are plenty of costs involved,” said certified financial planner Kashif A. Ahmed, founder and president of American Private Wealth in Bedford, Massachusetts. “You might have to do some renovations to sell it.” 

    If a buyer makes it as far as the home inspection process and sees issues in the house that were not noticeable during the initial walkthrough nor disclosed, they may have room to ask the seller to do the necessary repairs, Daryl Fairweather, chief economist at Redfin, recently told CNBC.

    That is especially true in housing markets where listed homes are lingering on the market for longer because it gives homebuyers “bargaining power,” according to Orphe Divounguy, a senior economist at Zillow.

    Sellers often incur pre- and post-listing repairs, improvements and renovations that can cost around $10,000, according to Clever Real Estate. 

    “There may be a situation where a buyer might say, ‘Well, I want you to fix this before I buy it,’ and then you’re like, ‘Well, in the interest of getting rid of this place … I’ll spend the extra money,'” Ahmed said. 

    But the highest expenses an owner will face when selling a home are the real estate agent commission fees, Ahmed said.

    ‘The rule change has not yet gone into effect’

    A landmark case is poised to change the way homes are bought and sold in the U.S.

    The National Association of Realtors in March agreed to a $418 million settlement in an antitrust lawsuit in which a federal jury found the organization and other real estate brokerages had conspired to artificially inflate agent commissions on the sale and purchase of real estate.

    “We went ahead and included it [in the Clever Real Estate analysis] now because, as of right now, the rule change has not yet gone into effect,” said Dunaway-Seale.

    A finalized NAR settlement takes effect in August, and there is a “much more defined notion that sellers are not responsible” for a buyer’s real estate agent commissions, said real estate attorney Claudia Cobreiro, the founder of Cobreiro Law in Coral Gables, Florida.

    Commission rates have also been removed from the multiple listing system, or MLS, in some areas like Miami, she noted.

    The new mandatory MLS policy changes will take effect on August 17, 2024, according to the NAR.

    However, “that is the policy side of it,” she said. “The practical side of it is that we are still seeing the notion that Realtors are needed,” and most buyers might not have an extra $10,000 on top of closing costs and the down payment required for the purchase, Cobreiro said.

    Dunaway-Seale agreed: “Sellers might not be obligated to pay the buyer’s agent commission, but a lot of them still might as just another incentive to bring buyers in.” 

    Ways to reduce costs

    A seller has to pay closing costs; everything else depends on the home seller’s priority, or how quickly they need to sell off the property, said Dunaway-Seale.

    Here are some ways to cut or reduce expenses associated with selling a house:

    1. Sell without a real estate agent: Homeowners could try to sell the house themselves and potentially drop real estate services altogether, said Dunaway-Seale.

    “But they’re not going to sell for as much profit,” she said.

    Among sellers who did not hire an agent, 59% did so to save money, Clever Real Estate found. But sellers who did work with an agent sold their house for about $34,000 more than those who did not, according to the report.

    Keep in mind that going through the transaction without a real estate agent can pose a risk.

    Signing the contract is the least of it. There are so many things that happen throughout the transaction that really require the expertise and the navigation by someone who understands the process, Cobreiro previously told CNBC.

    “You’re talking about one of the most expensive and consequential transactions of a lifetime,” said Hamrick. “These fees can on the face of it look a bit daunting, but the good news is most people are not going into this where they’re going to essentially lose money on the transaction.”

    2. Reduce concessions, staging and marketing costs: “If sellers don’t really care about selling their home quickly, they could possibly offer fewer concessions,” Dunaway-Seale said. Concessions are expenses the seller agrees to pay for to reduce a buyer’s upfront costs.

    Lowering the budget for staging and marketing costs can also save on expenses because such tools help draw buyers in, she said.

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  • The typical new home in the U.S. is shrinking. Here’s what that means for buyers

    The typical new home in the U.S. is shrinking. Here’s what that means for buyers

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    Thana Prasongsin | Moment | Getty Images

    The typical newly built house on the market these days is smaller than those for sale a decade ago. Whether that is a good or bad sign will depend on your priorities for your future home. 

    In the first quarter of 2024, a single family home newly under construction had a median 2,140 square feet of floor space, according to the figures from the U.S. Census Bureau.

    That is down from a median 2,256 square feet in the first quarter of 2023. The new figures make for the smallest new homes since the second half of 2009, the National Association of Home Builders found.

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    New builds have been shrinking since 2015, when the average home size peaked at 2,689 square feet, NAHB found. The only year home sizes jumped in that timespan was in 2021, because the pandemic lock-down spurred a demand for space to work or study from home, according to the analysis.

    Buyers want smaller homes

    Smaller homes help slash building costs, but much of the trend stems from buyer demand. Homebuyers are expressing a desire for smaller homes, whether as a compromise given high prices or because they simply want a smaller space, experts say.

    The typical buyer today wants a 2,067-square-foot home, according to the NAHB’s 2024 What Home Buyers Really Want study. In 2003, the desired home size was 2,260 square feet.

    “Buyers are shaped by the environment when they’re in a low-inventory, low-housing-affordability environment,” said Robert Dietz, chief economist for NAHB. “They make certain compromises.”

    In some cases, buyers might simply desire a compact home. In the U.S., nearly 30% of recent homebuyers are single, said Jessica Lautz, deputy chief economist at the National Association of Realtors.

    “They may not need 2,000 square feet or even want that for themselves,” she said.

    About 28% of polled buyers recently purchased a home between the sizes of 1,501 to 2,000 square feet; while 26%, purchased a home between 2,001 to 2,500 square feet, according to the NAR’s 2024 Home Buyers and Sellers Generational Trends Report. Another 16% bought a home that’s 1,500 square feet or smaller.

    The survey received 6,817 responses from homebuyers age 18 and up who had purchased a home between July 2022 and July 2023.

    How zoning influences home sizes

    About 38% of builders say they built smaller homes in 2023 and 26% plan to build even smaller homes this year, according to NAHB.

    While buyer demand is driving the trend, an area’s zoning rules may also play a role.

    Some jurisdictions have “exclusionary zoning practices,” which may require builders to make homes of a minimum lot size, said Dietz.

    “If you’re building a home in a certain neighborhood and that home has to sit on a half acre lot, or a lot close to a full acre, you’re not going to be building a small home on that lot,” said Dietz.

    The growth in such zoning rules and regulatory costs made it difficult for builders to make new, smaller homes in the years after the Great Recession, he said.

    Now, builders are able to make smaller homes in the form of townhouses as some areas relax their zoning rules, said Dietz.

    In the first quarter of 2024, about 42,000 townhouses, or single-family attached homes, began construction, according to U.S. Census data. The new figure is 45% higher than in the first quarter of 2023, NAHB found.

    “I don’t think it’s limited to one region, one type of geography,” said Dietz. “I think it’s really in places where jurisdictions are permitting zoning for that kind of medium-density environment.” 

    ‘A shrinking of the space in the required rooms’

    If you’re a buyer on the market considering a home around the median size, or roughly 2,000 square feet, “what you’re really talking about going from a medium-sized home to a smaller home is a shrinking of the space in the required rooms,” Dietz said.

    You could consider using your spaces for multiple purposes, experts say.

    “We don’t have a dedicated office,” said Dietz, who lives in a two-bedroom townhouse with his wife, a college professor, and their children. “Our dining room/kitchen doubles as basically my wife’s office.”

    Space-saving storage around the house is key for a smaller property, he said.

    “Literally every part of our home that has got a space that can be turned into storage, we’ve converted that,” Dietz said.

    During the pandemic, many homeowners looked at their homes in new ways, Lautz said.

    Some asked, ‘Do I actually need an extra bedroom or could I use that as a home office or gym?’ she said.

    A smaller property can also result in lower energy and maintenance costs, she said.

    But if you’re a buyer who desires traditional home spaces like dining rooms, you can still find an existing home on the market with such features, Lautz said.

    “There’s always going to be that ebb and flow within properties and how that space is being used,” she said.

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  • 3-year versus 5-year mortgage: How to choose your term – MoneySense

    3-year versus 5-year mortgage: How to choose your term – MoneySense

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    Whether or not a variable-rate mortgage is a good option for you depends largely on market fluctuations. Rates for this type of mortgage are typically lower than those of fixed-rate mortgages, which is a win as long as the prime rate doesn’t go up too much. And historically, they’ve tended to average out to lower payments over time. But the past few years have reminded Canadians that huge increases are possible, and home owners who signed on for a variable-rate mortgage pre-2022 have been waving goodbye to an extra several hundreds or thousands dollars every month for the past year and a half. For some, though, these increases are unmanageable and can lead to a potentially dire financial situation.

    What is a 5-year mortgage?

    A five-year fixed mortgage allows you to lock into a specified interest rate for a full five years. Just like with a three-year term, you don’t have to worry about changing markets affecting your payments for the duration of the contract. This is very appealing to home owners with less tolerance for risk—it’s a nice, long period of predictability. It also means much longer stretches between dealing with the headache of renegotiating. 

    Being locked in for longer, however, puts you in a less flexible situation. If interest rates drop, you won’t be able to take advantage of those lower rates—unless you decide to break your mortgage early, a decision that comes with hefty penalty. Or if your financial situation changes or you want to sell your property sooner than anticipated, that five-year commitment is a bit of a roadblock. 

    With a five-year variable mortgage, your payments will change according to the whims of the market. Usually, variable mortgage rates are lower, but since currently they will likely give home owners greater savings over their mortgage term, they’re higher than fixed-rate mortgages.  

    Where are interest rates headed? 

    The soaring interest rates of the past couple of years have been a significant stressor on millions of home owners and would-be home owners across Canada. While early 2024 has seen inflation cool, the prime rate, which is currently at 6.95%, has come down only slightly from its recent high of 7.2%. Economists expect June’s BoC interest rate cut will be followed by gradual decreases over the next few years. Most predictions suggest we’ll reach a full 1% drop by the end of the year with rates stabilizing at 5.2% by the end of 2027. Check out the latest rates.

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    Deciding on a mortgage term

    So, what does this mean when it comes to choosing a mortgage? If the predictions are accurate, a variable-rate mortgage is a great way to take advantage of the downward trend and save some money. Just be sure there’s enough room in your budget to cover higher payments should there be any rate hikes. Five-year variable mortgages are currently being offered at lower rates than three-year variable loans, which could make them the winning choice. 

    However, if any level of risk is the kind of thing that keeps you up at night, a three-year fixed-rate mortgage could be a better option—there’s no unpredictability when it comes to that monthly payment, and interest rates will most likely have decreased quite a bit by the time you have to renew. A five-year fixed may not be the best choice right now, as you’ll get locked into higher payments at a time when interest rates are going down. 

    Rate decreases aside, the decision largely comes down to your future plans—are you holding on to your property for the long term or do you want to keep your options open?—and your appetite for risk. Find your comfort zone and a plan that works for you.

    Read more about mortgages in Canada:


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