Mortgage Renewals - How to deal with high interest rates

I’m not sure about you, but to me everything at the moment seems unreasonably expensive. The deodorant I like was on “sale” for $6.50 and I started to wonder if I’d really smell that bad without it. The other thing that stinks at the moment is the cost of borrowing money.  In twelve short months, the bank of Canada has raised interest rates from 4.79% to 7.09%.  While these aren’t the highest rates in history, the pain being felt is because of how low they’ve been in recent memory.  

The sticker shock of today’s rate environment has a lot of people dreading mortgage renewal time. We spoke to a mortgage specialist recently.  People walking into his office are terrified of making ends meet when their mortgage renews. This article is to discuss a few options for anyone who’s nervous about how they are going to afford their new mortgage payment.

Option 1: Extend the Life of the Mortgage

Some people are considering extending the remaining time of a mortgage when the renewal comes around.  Your 25 year mortgage would have 20 years left. You could refinance the mortgage to 30 years to soften the increase due to high interest rates. By extending the remaining life of the mortgage, you are spreading the payments over a longer term which decreases the payment amount.  You’ll be paying more interest in the long run but you could always pay it down more quickly when rates return to a more reasonable level.

Option 2: Leverage Your Home Equity

What is equity? Home equity is the difference between the value of your home and how much you owe on your mortgage. For example, if your home is worth $250,000 and you owe $150,000 on your mortgage, you have $100,000 in home equity.

The one silver lining with everything going is that the majority of people should have a fairly good chunk of equity in their homes.  If you bought a home five years go, you would have paid significantly less than you would today. The table below shows the average price of a home in the last 5 years:

How is this helpful?

On top of mortgage payments, you might be suffering while you attempt to pay down a line of credit, credit card or car loan.  By pulling some equity out of your home with a refinance, you could pay off some short term debt to lessen your total monthly payments.  Extending the mortgage to 30 years at the same time would keep those payments down as well. 

For example:

Yes, your monthly mortgage payments will increase. However, your total monthly debt payments will go down.  This option will take some discipline to ensure you don’t wrack up the credit card bills again once you feel flush with spending room. 

Option 3: If You Can’t Refinance, Selling is a Possibility. 

For some people, the option to refinance is not there.  Your credit score may have taken a beating over the past few years or your job situation may have changed.  Whatever the reason, if you can’t refinance your mortgage and feel overwhelmed by debt, you could still capitalize on the equity in your home to steady your ship. 

The housing market in Nova Scotia is still strong, even despite a significant slowdown in sales over the past year.  This is driven by a lack of inventory which is keeping prices stable. So, you can certainly sell your home with the help of a CB Maritime Agent.  You would receive all the equity in your home upon closing, minus the cost of selling.  You could use the funds to pay off debt and get into a rental for a period of time, while you rebuild your credit or obtain a new job.  When you’re ready to get back into the market, interest rates should have come down and homes will hopefully feel more affordable again. 

Don’t Panic, There Are Lots of Options. 

It’s easy to feel overwhelmed by debt. As a business owner who’s been self-employed his entire adult life, I’ve had that feeling a number of times.  There’s always a way out though, and sometimes that means asking for help.  Be proactive - Reach out to your mortgage specialist to look into your options before you’re in a position when it’s too late to do so. 

You can lean on us at Coldwell Banker Maritime Realty as well.  You might have no idea what your home is worth or the leverage you have from the equity you’ve built the past few years.  Our home evaluations are completely free and require no obligation that you sell your home with us.  We love empowering our clients to make the right real estate decisions.  Knowing the value of your home does just that. 

If you know someone who needs our help, please send us an email at clientcare@cbmaritimerealty.com or phone 902 441 4818. You can also fill out the contact form below. 

Sincerely,

Chris Perkins, Broker/Owner
Coldwell Banker Maritime Realty
902 210 1223
chrisperkins@cbmaritimerealty.com