Every day is a good day to review your mortgage (but especially today).
Checking in on your mortgage should be like checking under the hood of your car - you really only think to do it when something sounds amiss or the sticker on your windshield tells you it’s time. But really, you should be popping it up regularly to make sure that everything is in working order.
But if your mortgage is like your car, then the 8th consecutive increase to the Bank of Canada overnight rate is like your check engine light coming on. So, ding ding! Let’s dig into mortgage reviews.
Why should you review your mortgage?
It’s a bit of a misconception that a homeowner can or even should just set their mortgage and forget it until the term is up. Say your term is 5 years long, for example. Think about how many things change in your life over a given 5 year period - income, debts, family and more ebb and flow far more often than that. So, it stands to reason that your mortgage needs will fluctuate along with these very normal shifts in life circumstance. Not to mention the mortgage landscape itself - rates and lender offers shift often and so too do market values. You never know what opportunities you could be missing out on! This is why we are huge proponents for checking under your mortgage hood at least annually. But there are also circumstances (like a Bank of Canada rate change) that should prompt you to check in. Here are some of the main ones:
Mortgage payment analysis
When most of us buy a home, the thing we focus on most is the payment we are on the hook for. Of course if you opted for a variable rate, today’s upward rate environment has likely prompted you to check in with your mortgage advisor to create a plan for keeping your payment affordable. But even if you are in a fixed rate for another year or two, it is always wise to check in. With the vast selection of mortgage products on the market right now, you might be surprised to see that a restructuring mid-term will end up saving your family money month-to-month. And with the cost of simply existing in Canada reaching record heights with no sign of slowing down, we could all stand to free up some cash.
The bank won’t hand you an umbrella when it’s not raining
Typically in times of economic uncertainty we see an increase in the number of homeowners accessing the equity in their homes - either to create a safety net for a rainy day, to cover expenses in times of economic hardship, or to invest in a new revenue-generating project or business. But here is the thing about that! By the time you have reached the rainy day, most lenders won’t be keen to lend. They’d much rather lend when things are sunny!
Which is why, following today’s announcement that upon bringing the overnight rate to 4.5%, the Bank of Canada is putting a conditional pause on further increases, this winter could be a perfect time to access that valuable equity. Of course borrowing against the value of your home is still debt and should be treated wisely, but creating that cushion by loosening up that cash while things are good could prevent so much stress down the road.
If you’ve been considering taking a look at your mortgage to potentially access that equity, take a look at the calculator we’ve created for you below. Click the button below, make a copy and simply fill in all the green fields with your current mortgage information to see what your new mortgage could look like based on current rates available. Remember that this is just a quick visual, and that it will value greatly from person to person, but you’ll likely be pleasantly surprised to see what your home might be able to do for your peace of mind this winter.
Getting ahead of your renewal
Once a home sale is closed, we often don’t hear from clients again until renewal time rolls around and they’ve received their lenders’s renewal offer in the mail. But not only do you not have to wait to receive that offer before connecting with a mortgage advisor, you actually shouldn’t wait. There are actually very few situations in which the lender’s renewal offer is going to be your most affordable option. In most cases, they will simply send you an offer with their best posted rate that week (which could be as late as 3 weeks before your term is up) and call it a day. By signing that offer blindly, you are robbing yourself the opportunity to review so many more options that could ultimately save you thousands.
This should ring especially true for homeowners currently in 5 year fixed terms. You likely already know that fixed rates fluctuate in response to the Canadian 5 Year Government Bond market - when bond yields go down, so too do fixed rates. Currently, the uncertainty of the market and potential impending recession has investors wary, which is pushing them toward lower-risk investments, such as government bonds. So when they see the Bank of Canada’s rate go up, the demand for low risk government bonds increases and their yield drops down. This is why we are seeing a drop in fixed rates, and will likely see more in the coming months.
Why does this matter? Because if you have a renewal coming up in a year or two, there is no certain way to tell what rates will be by then. But, if you take this opportunity to lock yourself in while we are in the midst of this dip, you could potentially buy yourself another 5 years of consistency!
To take a deeper dive into what your out-of-pocket would look like month to month with a number of different renewal and refinance options, head to the refinance scenario calculator we created for you and punch in your numbers!
The bottom line
No matter which way you cut it, the financial burden to most Canadians right now is nothing to brush off. There is no feeling worse than not knowing how much longer we will be able to make ends meet. But if you are a homeowner, remember that you have an asset at your disposal that can help you weather any storm and, if leverage correctly with the guidance of a professional, can leave you stronger on the other side!
Our team is always here to lend an ear or help you forge a plan. Head to the link below to schedule a call or just drop us a line today. We don’t want anyone to feel left out in the cold!
