Catching up to a runaway mortgage.
If you’re a Canadian mortgage holder, chances are you find yourself in one of two camps: your payments have skyrocketed, or they’re about to. But one of the best things you can do for yourself to make things less stressful is to know what you’re getting into.
The Financial Post reports that two-thirds of Canadians with mortgages will renew by 2026. And with Bank of Canada interest rates currently at a 22-year peak of 5%, most will be at higher rates.
That’s because mortgage providers tie their rates to the Bank of Canada’s prime rate. Even if that rate dips, it’s a long way from the 0.25% interest rate that held from 2020 through 2022.
And it’s not just variable-rate mortgage holders who have to watch out. Homeowners with fixed-rate mortgages, as in, those who’ve held a locked-in rate while the variable rates soared, should also expect to pay more when they come up for renewal. And when mortgage rates increase, those effects ripple throughout the housing market.
Who can keep up? You can! Here are a few ways you can plan for a higher mortgage payment.
What’s your number?
They say knowing is half the battle. And when it comes to a mortgage rate hike, you want every advantage before charging in.
The first step is to nail down exactly how much you’ll be paying if higher interest rates continue. The Government of Canada’s mortgage calculator is just one online tool that can help you determine what your monthly payments will be.
You might also be able to check up on your monthly payments and mortgage balance online through your mortgage provider. When in doubt, you can always reach out to your mortgage broker directly.
From there, you can adjust your budget to ensure you’re able to make your payments (more on that later). If you share your mortgage with a spouse or loved one, set aside some time to have an open and honest chat about your finances, including what you can (and can’t!) live without. Even if you hold a mortgage on your own, it can help organize your thoughts to have a one-on-one chat with a friend or family member about how you’re going to achieve your goal.
Let’s make a deal
The mortgage renewal process isn’t a one-way street. It’s also a chance to consider what is and isn’t working about your current arrangement. Like any major financial purchase – for example, buying a phone, car or major appliance – the more time you give yourself to do your research, the better.
One option is to refinance, which means trading in your old mortgage for a new one with different terms. For example, if higher rates are squeezing your budget a little too tightly, you can opt for an amortization period that’s spread over, say, 20 years instead of 15. Your payments will be lower, but on the other hand, the total you’ll pay in interest will be higher in the long run.
Another option, if you’re able, is to make a lump-sum payment. A lump-sum payment is extra money you put towards a mortgage on top of your regular payments. This is a way to pay down your mortgage faster.
You may only be able to make a lump-sum payment at certain points in the lifecycle of your mortgage, and even then only up to a certain amount. Double-check your mortgage contract for more details.
Finally, you should check out what other mortgage providers have to offer. Though there could be a financial penalty for breaking your mortgage before your term’s up, it’s worth it if the savings outweigh the penalties. If you do the math and find someone else is offering a deal that’s better tailored to your situation, take it!
Make the cut
Take a deep breath – now we’re going to find the money. There are two steps you can take to tweak your budget.
First, compile a list of everything you spend in a month: things like food and transportation; recurring monthly bills like utilities, internet service and phone; plus your mortgage payment. And don’t forget to include your monthly spending on “wants” – stuff you buy just for fun.
Next, review your expenses and consider what you can cut to help pay for your higher payments. You might find that after doing some comparison shopping on some of your recurring bills that your mortgage provider isn’t the only service you’re considering switching!
The pay off
Keeping up with higher payments can be a challenge, but when you plan ahead, compare options and budget accordingly, you’ll set yourself up to hit those payment deadlines every time. The icing on the cake: making regular payments is also great for your credit score.
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