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With rising mortgage rates over the last year and expectations for continued increases, at least into the early part of this year, you may wonder: What should I do about my mortgage? If you’re asking this, you’re not alone! Let’s talk about some mortgage strategies to help you deal with the rising interest rates in Canada, whether you’re buying a new home, nearing the end of your term, or are looking to refinance.
One of the best ways to protect yourself against interest rate increases is to budget appropriately and ensure you’re prepared to take on the financial burden. If you’re thinking about buying a home or currently own one, you can understand what kind of mortgage you can afford by writing out your daily, monthly, and one-time expenses and other debts you may owe. Keep in mind that it’s also essential to factor in cash flow for emergency funds.
Once you have these values outlined, you’ll have a better idea of how much money you can comfortably dedicate to your mortgage or if you need to save more.
You can also increase the amount on your regular mortgage payments or make extra lump sum payments. This can be a good way to deal with the unpredictability of rising interest rates if your financial situation allows it. This allows you to pay off your mortgage faster and reduce the interest you pay over the loan’s lifetime.
Ensure you check with your lender or consult a mortgage broker before making prepayments because this option may involve penalties.
Refinancing involves taking out a new mortgage to pay an existing one. This may be a good option if your current mortgage is fixed with significantly higher interest than current market rates. Through this process, you can take advantage of lower interest rates, which could, in turn, lower your monthly payments.
It also enables you to change the terms of your mortgage, such as the amortization period. In general, the longer the amortization period, the cheaper your regular payments will be — but keep in mind that the total interest you pay over time will be more.
It’s important to note that when you refinance your mortgage, you’ll have to follow the same process as when you applied for your existing one: getting approval, credit checks, and providing proof of income.
With a fixed-rate mortgage, your interest rate stays the same throughout the loan term. This option is helpful if the Bank of Canada’s policy rates keeps rising (which will impact variable mortgage rates but not fixed ones). A fixed-rate mortgage may be right for you if you want:
It’s important to remember you may end up with higher rates compared to a variable mortgage, especially if market rates eventually fall. While anything is possible, the 2023 mortgage rate forecast predicts a slight increase and then a decrease toward the end of the year, which means you could miss out on savings in the long run if you lock into a fixed rate.
One way to take advantage of the stability of fixed mortgages without missing out on lower variable rates is to consider a shorter term, like three years instead of five. This way, if variable rates are more affordable at the end of the period, you can take advantage of this change.
Early renewal may seem attractive if you currently have a fixed-rate mortgage and interest rates keep rising drastically. Essentially, lenders will offer to renew your mortgage at a current rate before it increases more in the future.
Try to be cautious about this, though, because when you renew in a rate-increasing environment, your new fixed rate will likely be higher than what you currently pay. Depending on your situation, it could be more beneficial for you to wait and enjoy your lower rate for as long as possible.
The Government of Canada has some incentives to help you with your down payment, which can help decrease mortgage payments. Here are some examples:
It’s important to remember that not all the strategies outlined above may work in your situation. If you’re unsure what’s suitable for you, that is where I come in. As a mortgage broker for more than 15 years, I have the expertise to guide you through these times of rising interest rates. I’m here to help you find the best mortgage rate options for your unique needs. Contact me today!
Andrew Thake is a seasoned mortgage broker with over 15 years of industry experience. He’s assisted more than 2,200 clients in finding their ideal mortgage solutions. Recognized for his excellence, Andrew has received high honours and awards, including the National Rookie of the Year from TD Canada Trust and recognition as a Top 10 Ottawa Mortgage Broker in 2023. He has also been inducted into the Hall of Fame at Dominion Lending Centres and has consistently received their Platinum Award during his tenure as a mortgage broker.
Andrew’s dedication lies in serving his clients and prioritizing their needs with an empathetic approach. Throughout the application process, he provides tailored, informed, and efficient services to ensure the best mortgage solutions for his client’s unique circumstances. The best part of Andrew’s job is when he gets to see the joy on his clients’ faces following their mortgage approval.