Experts say now is the time to step back and take stock of your family’s situation, but don’t be afraid to shop around to make sure you get the lowest mortgage rate when buying.
“What people do will depend on how tight their finances are, how close their mortgage is to close, how quickly they can plan to pay it off and their outlook for the economy and rates in the future. In general,” James said. Laird, co-CEO of Ratehub.ca and president of mortgage brokerage firm CanWise Financial.
James Laird notes that those wishing to renew their mortgage can be encouraged to stay with their existing lender to avoid having to repeat the mortgage stress test process with a new lender.
“The problem is that people are less likely to shop around and get the best rate. People shouldn’t be deterred from shopping. Many people will still succeed. Those who could pass the stress test five years ago can probably pass it now, ”she notes.
The mortgage stress test was first introduced in 2016, and the new rules went into effect last year.
Most mortgage holders in Canada have a term of five years or less, whether it is a fixed or variable rate mortgage. And while fixed-rate mortgage borrowers have generally enjoyed some stability in the face of rising interest rates compared to those with variable-rate mortgages _ which have been impacted immediately by the increases _, those preparing for renewal will still see their mortgage payments increase significantly.
According to Ratesdotca, homeowners are likely to see an increase of around 18% in their monthly payments upon renewal, even if they have paid a significant portion of their mortgage and may have a higher income.
Laurie Campbell, director of customer financial wellbeing at Bromwich + Smith, points out that renewing a mortgage before the renewal date can be beneficial to securing a lower rate, but that does come with risks.
Major banks and other lenders in Canada offer an early mortgage renewal option that allows you to renew before the end of a term without penalty, but change of lender or renewal before the renewal period of a Mortgage lender can result in financial penalties.
“We have to weigh the penalty with the best rate we can get. So that’s the disadvantage of early renewals, ”she explains.
“You can start an early renewal thinking that interest rates may continue to rise, but if they don’t, you end up paying the cost. So it’s kind of like Russian roulette. “
A shorter option
A shorter mortgage term can also be considered, which is generally three years or less, but the same caveat prevails: It is not known whether interest rates will continue to rise or not, adds Laurie Campbell.
“Suppose we choose a three-year term rather than a five-year term and that the three-year term arrives and suddenly we have to pay even more because interest rates have risen in the last three years,” he says.
Samantha Brookes, CEO of Mortgage Broker Mortgages of Canada, has received many calls in recent weeks from clients about to renew and the main questions she asks are: how much debt they have, can they renew now with the debt they hold and can they continue
bear their debt for the next two years?
“For those who have a mortgage in addition to other debt or a line of credit, or those who have a second mortgage, have to renew one and can’t afford it at the moment, it might be wise to refinance now,” he believes.
Considering the possibility of a recession next year, James Laird of Ratehub.ca believes an adjustable rate mortgage could be an option to consider when renewing.
“When a recession occurs, the central bank could stop raising rates and possibly lower them. Therefore, the earlier and more severe the recession, the more we should expect a drop in rates. And only a floating rate would benefit from a possible rate cut next year or the following year, while the fixed rate mortgage will remain at the level it was set at, ”he points out.
Ultimately, there is no one-size-fits-all solution, says James Laird.
