Getting your first home is an exciting milestone. But if you were a first-time home buyer during COVID, our guess is that there has been one thing on your mind ever since – renewals.
As interest rates fluctuate, mortgage renewals can bring about uncertainty and concerns. 2023 brought record hikes, which makes it crucial for Canadian homeowners to understand the implications of these changes and how to navigate them effectively.
Understanding Mortgage Renewals
A mortgage renewal happens when the term of your current mortgage ends. Currently, you have the option to renegotiate terms with your lender. This typically happens every few years, depending on the length of your mortgage term. Average term lengths range from six months to five years or more.
Impact of Higher Interest Rates
When the Bank of Canada hikes interest rates, mortgage rates go up as well. For homeowners approaching a mortgage renewal, higher interest rates can lead to increased monthly payments, potentially putting strain on household finances. Additionally, higher rates may limit the options available when renegotiating mortgage terms.
Key Concerns for Canadians
Increased Monthly Payments: Likely the biggest concern for you as a homeowner facing a mortgage renewal in the next 6 months is the probability of increased monthly payments. This can impact household budgets and financial planning in a big way.
Affordability: With higher mortgage rates, some homeowners may find it challenging to afford their current mortgage payments or may need to adjust their budget to accommodate the increase. Thankfully, the stress test that you were required to meet when you applied for your mortgage should ensure that you have a buffer for interest rate increases – like the ones we’ve experienced over the last year.
Limited Options: Higher interest rates may limit the availability of competitive mortgage products and terms during the renewal process. This could result in homeowners having to accept less favorable terms or shop around more extensively for suitable options.
Financial Stress: The uncertainty surrounding mortgage renewals in a rising interest rate environment can lead to increased financial stress and anxiety for homeowners, especially those with variable rate mortgages or those facing significant payment increases.
What to Do if it’s Time to Renew
All over the headlines in 2024, experts have been speculating when the Bank of Canada will begin their promised decline in interest rates. For those whose mortgage renewals just can’t wait, you may be wondering what to do if locking in at the highest rates in the last 20 years sounds like a bad idea.
This is the time to look at shorter-term agreements. 1 year and 2-year rates may give you the stability you need for payments while allowing the flexibility to renegotiate once rates hopefully settle down, likely into next year and beyond.
The alternative is to switch to variable, trading higher short-term payments for potentially lower payments as soon as summer or fall of 2024. The gamble here is that there is never a full guarantee that rates will decline as we anticipate them to, however things are looking probable for a decline as we get closer to 2025.
Either Way, Seek Professional Advice
Consider consulting with a mortgage broker to explore your options and make informed decisions based on your individual circumstances.
Navigating mortgage renewals in a higher interest rate environment can be daunting, but with careful planning and consideration, Canadian homeowners can mitigate concerns and make informed decisions to ensure financial stability.
By understanding the implications of high interest rates, exploring available options, and seeking professional advice when needed, homeowners can confidently navigate the mortgage renewal process and secure a mortgage that aligns with their financial goals. Speak with Buckley Mortgage Broker to get solid advice on your next renewal.
