Life just keeps getting more expensive. Let’s make it more affordable.
Whether we like it or not, life is simply more expensive right now. With inflation taking its time cooling off and a recession around the corner, most Canadians are actively searching for ways to cut down on expenses and protect themselves from financial catastrophe.
The good news? Your mortgage could give you you more options that you know. Here are a few hacks that could help make life more affordable this winter.
It sort of feels like no matter where we look likely we are bombarded with headlines about the sky-high cost of living, increasing interest rates and the dreaded “R” word looming overhead. And I get it - getting that information from every direction can be daunting. But there are a few things that are important to keep in mind. First; what we are experiencing is a correction of our economy. The impact of the pandemic is still resonating deeply (in more ways than one), and as the economy takes a dip, we know that it is a direct result of normalcy reentering the scene. Yes, it is going to come with some financial burden and it could pose some difficult times for some Canadians. But this is not 2008, and we will more than likely not experience the same level of lows that we did then.
Second; there are so many options when it comes to setting yourself up for financial success during this time. Aside from the general advice about budgeting, limiting extra expenses and creating an emergency fund, there are many ways for homeowners to utilize their mortgage financing strategically to help weather the storm.
Understanding your effective rate
If you’ve been around here for a while, then you might remember a September blog in which we discussed effective interest rate. As a refresher, your effective rate illustrates the average interest rate you are paying between all of your debts as well as the borrowing power you have with the equity in your home.
Why is this important? Because even as interest rates rise, you may find that you are still paying more each month toward high interest debt (ie: credit cards and unsecured lines of credit) than you would be if you were to roll expensive payments into your mortgage. Recently, we have helped countless clients leverage the valuable equity in their homes to pay out the balances on their high interest credit facilities. And with home property values still relatively high, many are even left with some extra freed up funds from the proceeds of their refinance even after paying any penalties for early payout of their original mortgage.
Are we talking about this great tool a lot? Sure! But that’s because we have seen it do wonders for setting our clients up to weather this winter, save hundreds of dollars each month, and feel a sense of security in this time of uncertainty. If you’re interested in learning more about what this could look like for you, start by using our effective rate calculator below (save a copy to edit it) and then give us a call!
Restructuring your Existing Mortgage
Adding additional funds
Perhaps refinancing and starting in a new mortgage isn’t an option for you based on your current mortgage terms, or maybe you’re just not into it. Well, there are options for you too! Did you know that many lenders actually have products that give their current borrowers the ability to add funds on top of their mortgage? Much like refinancing, these products can be valuable tools for creating safety nets, paying off high interest debts and freeing up more cash flow to make the month to month more affordable for your family. If you are looking to access more cash by way of your home, give us a call. You might be surprised to find how much flexibility your mortgage allows!
Extending amortization
If you have a renewal coming up, then you’ll likely be facing a higher payment than you’ve become accustomed to. But you don’t just have to take a new rate at face value. There are ways that we can restructure to keep the payment lower. For example, extending the length of your mortgage to spread the principal out over a longer period will help keep payments lower. And, if and when rates come back down, you always have the option of shortening it back up for your next term!
Locking it in
The choice of whether or not to lock in your variable rate to a fixed one is very personal, and will vary from one owner to the next. But if the burden of the increasing rate environment is outweighing the benefits of riding out the storm in a variable, then we can do just that! Many borrowers are choosing to lock into shorter fixed rate terms, which gives the best of both worlds in a way by a providing the peace of mind of a static payment, but the flexibility of an earlier renewal to avoid prepayment penalties the opportunity for lower rates arise sooner.
Whether you are a current homeowner or just starting to look into the market, a first time buyer or seasoned investor, there are tools in our pockets as mortgage financing professionals to help you navigate the cost of living this winter. If you have questions about how best set your finances up to weather what’s ahead and even experience some growth, reach out to our team today!
