Mortgage payments up 45%! Interest rate surge is going to hurt! Anxiety and confusion increasing!
One look at the top financial headlines and it’s no wonder you’re worried about your mortgage payments. Perhaps you’re fixed in and your term is about to come up for renewal. Or, maybe, you’re in a variable mortgage and the rising rates are getting too high for comfort.
Our advice? Take a big, deep breath.
As seasoned financial experts, Buckley Mortgage Broker have weathered our fair share of market ups and downs through the years. Come with us as we take you through the reasons why we are not panicking – and neither should you.
You’ve Prepared for This
No, really! You have.
Obtaining a mortgage in Canada generally means undergoing an application process that puts you through a mortgage “stress test”. Remember when you submitted information about every single bill you pay and how much income you make?
That was primarily done so that the institution you borrowed money from could be sure that when rates inevitably rose (they were quite literally at rock bottom), you would be able to handle it.
Is it fun to spend more on your mortgage payment than you previously had? No, it’s not.
But the rise in interest rates is not going to be eating away at your hard-earned pay the same way that runaway inflation (a true threat) has already started to.
Scary News Sells
In the wake of a global pandemic, major news outlets are hungry for more catastrophe.
Why?
Doom and gloom gets clicks. In a world of scrolling, the most sensationalized titles gather the most reads.
Is it healthy? Definitely not.
But being aware of that fact can help when choosing where to get your financial updates from. If you’ve already managed to speak to your trusted advisor over the past few months, you’ve likely seen for yourself that the situation isn’t quite as dire as some would make it seem.
It’s All in the Numbers
We’ve gone over the general reasons why the sharp rise in interest rates shouldn’t be costing you your sleep, but let’s get down to the nitty-gritty – math.
Numbers don’t lie.
First, for our fixed-rate friends, at this point, you may have heard rumblings of a 45% mortgage payment increase when your term comes up. Yikes! That sounds rough.
But let’s break down what that actually looks like.
Let’s say you bought a home in the past 18 months when rates were at their lowest. Your payments are currently sitting at $2500 a month. When it comes time to renew, if, for some reason, you decided to lock in for 5 years at the chunky rate of 5.34, you would see a payment jump of about $1,125. Not great.
But – why would you opt for one of the priciest term options? Especially when you factor in that more than half of all mortgage terms in Canada are broken before their time is up.
If you opt for a variable mortgage or a shorter fixed term, you’ll likely find your payments do not experience the same financial blow.
But isn’t it a bad time for variable?
We say no. Even with the dramatic increase in rates, the variable trigger rates for Canada have not yet been hit. In fact, it’s unlikely that they will be hit even by end of year – and that’s factoring in a term cycle that started at a rate as low as 1.52%!
But what if you’re still feeling financial pressure at renewal time?
If the rise in payments just doesn’t work for you, take comfort. You have another option at your disposal.
Increase amortization!
Lengthening your mortgage will ease your payments at renewal time – and who knows? When it’s time to renegotiate your mortgage payments in the future, rates may have calmed down and you could be in a position to return to your original amortization.
Remember – Don’t Panic
If you take anything away from this article, we hope it’s that life is long and you do have options. Things have changed quickly in the mortgage world, but we were starting basically at zero. The only way to go was up!
Still feeling confused? Why not get in touch with one of our agents? We can walk you through different scenarios using your actual mortgage payment numbers so you can have peace of mind (instead of existential dread) as you approach renewal.
