Recessions can feel scary. Suddenly thousands of people are without jobs, and there’s less money circulating in the economy. But, before a recession hits, most Canadians can feel it coming.

Here’s what to look for and how to react should a recession hit Canada in 2023.

What is a Recession?
A recession occurs after six months of negative gross domestic product (GDP). GDP refers to a situation where a country’s economy is contracting or shrinking, rather than growing. A negative GDP can be a sign of economic recession or depression. This may result in people losing their jobs, businesses closing, and consumers buckling up and spending less money.

Why do Recessions Happen?
Recessions are naturally a part of the economic cycles and must happen to regulate the monetary policy, but that doesn’t help consumers who can’t make ends meet.

Some common reasons recessions occur include the following:

Out-of-control inflation – If the government has to step in to handle inflation, it can raise interest rates considerably, which deflates most businesses’ capabilities
Negative economic events – The pandemic is a good example of a negative economic event no one saw coming, and it swept the entire world
Debt bubbles – When businesses have excessive debt, and interest rates increase to the point they can’t afford their loans, it hurts the economy.
What Happens to Canadians during a Recession?

Now that you know why a recession might occur, how does it affect consumers?

If the economy goes into recession, it means companies create fewer products. With production slowdown usually comes layoffs and businesses closing. This can also affect the stock market and, eventually, consumer spending because consumers become too afraid to spend the money they have.

This creates a vicious cycle. Consumers don’t spend, so businesses stop producing, which means more layoffs and a hiring freeze. Consumer confidence falls, and the entire country goes into what feels like a depression.

Fortunately, a recession isn’t a depression. Recessions are temporary, usually less than one year, and depressions last.

How the Government Helps?
Just as the government steps in when the economy suffers from high inflation, they also help with a recession.

Instead of increasing interest rates, they typically lower them. This makes it easier for businesses and consumers to borrow and recycle money throughout the economy. As a result, businesses can get back to producing more and eventually hire more help, and consumers’ confidence will increase in the economy, allowing them to spend again.

Preparing for a Recession

If you’re worried about a recession occurring, here’s how to prepare:

Spend only on necessities
Don’t go into debt
Increase your emergency fund
Consider additional income streams
Review your budget and investment plan
Remain calm, and don’t bail out of your investments

Final Thoughts

Recessions don’t last forever, so don’t make drastic changes to account for them. When the recession passes, you’ll be back to your ‘old ways’ and can spend with more confidence. But, for the time being, prepare yourself for the worst so you don’t suffer financially if the economy hits rock bottom.

If the holidays left you with a mountain of credit card debt and less money in your bank account than you’d like, you might consider refinancing.

It won’t solve every homeowner’s problem, and not every homeowner will be eligible, but it may help you start the New Year fresh.
Reasons to Consider Refinancing after the Holidays

There are many benefits of refinancing after the holidays. Here’s what to consider when deciding.

Can you get a Better Rate?

If you can secure a better interest rate now, you’ll lower your payment and save money. Not only might your monthly payment decrease, but you’ll save thousands of dollars over the loan’s term.

If you have a prepayment penalty, determine how long it would take you to recoup the costs with your monthly savings. Sometimes it still makes sense to refinance, even with a prepayment penalty. A qualified Mortgage Professional can help you with these calculations.

Do you Have Equity you can Use?
If you have home equity, you might be able to borrow it, using the funds to pay off your debts. Most homeowners can borrow up to 80% of their home’s value, using the difference between their mortgage payoff and the new loan amount to pay off high-interest consumer debts.

Do you Need a Month to Gather More Money?

When you refinance your mortgage, there are usually at least 30 days between closing and your first payment due date. However, this may give you some freedom in your mortgage due dates, allowing you to save more money to make your payment on time as you recover from holiday spending.

Can you Afford a Shorter Term?

You may consider a shorter-term loan if you have more room in your budget for a larger mortgage payment. This enables you to own your home faster and decreases your interest rate. Paying less interest can save you thousands of dollars over the loan’s term, putting more money in your pocket.

When to Consider a Longer Term?

Maybe you don’t have any debts to consolidate but you feel like you’re living paycheque to paycheque. Stretching out your amortization to 25 or 30 years will decrease your mortgage payments and allow for more cash flow. You can use these savings to lower any financial stress you may be feeling and build up a savings account.

What to Consider When Refinancing

Before refinancing your mortgage, here are some considerations:
Is your credit in good shape?
You don’t need a perfect credit score, but lenders will pay close attention to your payment history. For example, if you’ve made mortgage payments late recently, they may not lend you more money than you owe.

Do you have a prepayment penalty?
Be sure to understand the implications of refinancing. For example, if you’re subject to a penalty if you break your mortgage early, determine the cost and whether it still makes sense to refinance.

Will you use the money saved appropriately?
If you refinance and save money, will you allocate the funds to your high-interest credit card debt or spend it irresponsibly? Using the funds appropriately is the only way to ensure you get out of debt and make refinancing work in your favour.
Final Thoughts

It may make sense to refinance after the holidays if you qualify for an affordable rate and will use the funds properly.

Don’t refinance just to refinance. Instead, have a purpose and a plan, and use it. The key is to use the funds accumulated to get out of debt and help yourself get ahead financially.