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How to Handle Increasing Mortgage Rates in Canada

Written by Jessica Steer
As prime interest rates start to climb higher and higher, many homeowners are wondering how they are going to keep up. Some homeowners are already feeling the effects of the rising interest rates, mostly those with variable interest rates.
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    Others will soon when it comes time for their mortgage term renewal. How are people managing to afford higher payments? What can you do to make the payments lower? Well, let's take a look.

    Ways to Combat High Mortgage Payments

    While it may seem impossible to keep up with rising interest rates, there are things that you as a homeowner can do to help alleviate some of the financial stress. Some of these have nothing to do with your monthly mortgage payments, while others will directly affect them.

    Pay Down Non Mortgage Debt

    One way you can ensure that you have enough funds in order to make your mortgage payments is to make payoff or pay down loans and other non mortgage debt. Things like line of credit and credit cards will end up costing you much more money in the long run, especially if you have high credit balances and no fixed rate. Making the random lump sum payments can also eat into a lot of your monthly budget. Paying those off and not having additional payments before you renew your mortgage will make a big difference when it comes to affording the extra few hundred dollars you may need to start paying every month.

    Extended Your Amortization Period

    While it's not the most recommended option, extending your amortization period is one way that you can avoid higher mortgage payments. You might be wondering why this makes a difference? Well, the amortization period of a mortgage is the overall length of time you have to pay it off. Say yours currently sits at 25 years, if you extend it to 30 years then you have 5 more years to make your payments, ultimately reducing your monthly payments.

    While extending your amortization period can be a good way to reduce your monthly payments, it also has its drawbacks. What are they, you ask? Well, the first is that you end up making more payments, even though they may be lower. And with those payments we find the second problem, more interest payments. While it may not be noticeable, you do end up spending more money over time.

    Consolidate Your Debt

    Another way you can save some money is to borrow money and consolidate your debt. By doing this you are putting everything into one fixed payment with one fixed interest rate, getting rid of your high interest debts. This allows you to save money not only in interest payments, but also by reducing the length of time some of your debts would be.

    There are two ways people choose to consolidate their debt. Some take out a consolidation loan that puts together all of your non mortgage debt. The second way is by consolidating it all into your mortgage. While this doesn't necessarily reduce your mortgage payments at all, it does get rid of all of your other debt payments making the mortgage payments more affordable and increase your cash flow. Some people even choose to do this with their car loans.

    Renew Your Mortgage Early

    With today's interest rates, you never know when the Bank of Canada is going to increase the overnight rate. Because of this, some homeowners are choosing to renew their mortgages early. If you renew too early you could end up paying a penalty, but in some cases you may end up saving more money than the cost of the penalty.

    That said, you can renew up to 120 days or 4 months before the end of your mortgage term. If the prime rates are expected to increase again before your mortgage term ends, this may be an option you wish to consider to get the best mortgage interest rate. You can also talk to a mortgage broker which will help to find you the most competitive rate.

    Get a Fixed Rate Mortgage

    Those who have variable rate mortgages are definitely feeling the rising interest rates. Even if your variable rate mortgage allows you to keep the same payments even when the interest rates rise substantially, you will notice that there is less money being put towards your principal. In cases like this it's often recommended that you transition to a fixed rate mortgage or lock in your rate. Your mortgage company will be able to let you know the specific options in regards to your mortgage term and loan.

    Improve Your Credit Score

    When financial institutions calculate interest rates for your mortgage, your credit rating plays a big part in their decision. The higher your credit score, the more likely you are to pay less interest. Your mortgage loan agreement is renewed once your term ends so you can combat those painful higher interest rates by making your credit score as high as possible.

    What if You Can't Make Your Mortgage Payments?

    While missing a lot of mortgage payments can result in a property foreclosure, having to miss one or two payments isn't actually that big of a deal. Many people don't know this but, in Canada, you can get deferred payment plans for your mortgage. That said, many financial institutions only allow 1 or 2 payments each calendar year. There are no penalties for it and it doesn't hurt your credit score. In a pinch, this can really help a lot.

    How Spring Financial Can Help

    Did you know that, along with personal loans, we also offer mortgages, debt consolidation with your home equity and line of credit and mortgage combos? It's as easy as applying online and speaking to one of our licensed agents. They will be able to help you find the best mortgage solution for you.

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