Darko Mihelic, an analyst with RBC Capital Markets, revealed that over the next three years, around 60% of Canadian mortgages are due for renewal. Mihelic cautioned that many borrowers, particularly those who opted for fixed-rate options before the Bank of Canada's series of interest rate increases, might experience a "payment shock" upon renewal.
A recent survey by Royal LePage, conducted between September 8 and 14 and released on October 26, reflects the rising unease among homeowners. The study showed a majority, nearly three out of four, expressing apprehension about their upcoming mortgage renewals, anticipating higher interest rates.
The era of ultra-low interest rates seems to be behind us, and homeowners must brace for this shift.
People are contemplating a series of financial changes to manage the anticipated extra drain on their finances, this includes exploring new lenders and extending their amortization schedules.
Additionally, many are thinking about their daily expenses and strategies on how to reduce them due to the current lending rates reaching their highest point in 21 years. If you're facing this challenge, here are some strategies, ideas, tips that might help you:
- Review our mortgage terms: Knowing when your mortgage is up for renewal provides you a timeline to prepare yourself for potential payment changes.
- Refinancing: If you're concerned about rising rates, consider refinancing your mortgage to lock in a fixed rate now. They offer the security of consistent payments. Warning however, going to a new lender could backfire because you will have to requalify under the stress test — 5.25 per cent or the lending rate plus two per cent.
- Stress test your budget: Calculate what your new monthly payments might look like if rates were to double. Can your budget handle the increased payment? If not, where can you cut expenses?
- Build an emergency fund: An emergency fund can provide financial stability in times of need. It's recommended to have three to six months of living expenses saved. If your mortgage payments do increase, this fund can help bridge the gap while you adjust your budget.
- Cut back on discretionary spending: Look for non-essential expenses you can reduce or eliminate. Dining out, entertainment, and other non-essential items can be cut back to save money. Review all your subscriptions, from magazines to streaming services. Eliminate those that you don’t frequently use.
- Consider downsizing: If your home's value has increased significantly and you're concerned about affording future mortgage payments, it may be worth considering selling your home and downsizing to a more affordable property.
- Stay informed: Stay updated with the Bank of Canada's announcements on interest rates and other economic indicators. The more informed you are; the better decisions you can make.
- Open communication: If you find yourself struggling to make mortgage payments, communicate with your lender. They might offer solutions like payment deferrals, loan modifications, or other assistance.
- Freelance or side hustles: Consider ways to bring in additional income, whether that's a part-time job, freelancing, or other side gigs.
- Avoid new debt: Until you're confident in your ability to manage a potential increase in mortgage payments, avoid taking on significant new debts like car loans or large credit card balances.
- Re-evaluate lifestyle choices: For instance, if you have multiple vehicles, consider if you can downsize to just one or opt for public transportation. Or, perhaps you can cut down on frequent vacations.
- Negotiate bills: Look into bills that can be renegotiated, such as cable, internet, or phone plans. Even a small monthly saving on each bill can add up over time.
- Automate savings: Set up automatic transfers to your savings account, even if it's a small amount. Over time, this can help you build a cushion.
- Rent out extra space: If you have an extra room or a basement, consider renting it out. Platforms like Airbnb can also be a source of temporary rental income.
- Debt consolidation: If you have multiple debts with varying interest rates, consider consolidating them into one loan with a lower overall interest rate. This could reduce your monthly payments.
- Sell unused items: Declutter your home and sell items you don't need. Platforms like eBay, Kijiji, or Facebook Marketplace make this easier.
- Stay calm and be proactive: Financial stresses can be challenging, but panic doesn't help. Approach the situation calmly, proactively, and with a plan.
Everyone's financial situation is unique, so it's essential to tailor strategies to what suits your circumstances best. If in doubt, feel free to call or email Fred and Martin Mortgages, and we will happily analyze your financial situation and then come-up with the recommendation for you and your family. Best of all, it’s free and could save you thousands of dollars.
Fred and Martin