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With the rise in interest rates, mortgage holders may be challenged by the subsequent increase in monthly payments on renewal of their mortgage. The Financial Consumer Agency of Canada (FCAC) is urging lenders to work with clients to help manage the effects on their mortgage.
Extending Amortization
Some lenders are putting into practice one of FCAC’s recommendations to extend the amortization period beyond 30 years. Though this will obviously extend the payback period of the mortgage, it gives affected customers needed breathing room by reducing the monthly payment.
Payment Deferral
In another helpful approach, you might be able to negotiate a payment deferral period with your lender. That is, the lender may allow a pause on the payments. They will, of course, add this amount to your outstanding balance, increasing your principal, resulting in higher interest costs and added debt to repay over the life of the mortgage.
Debt Consolidation
On another approach, you may qualify for a debt consolidation at time of renewal. Your lender, mortgage broker or debt consolidation expert can help in this regard. Here you consolidate your unsecured debt with your mortgage. Mortgage interest tends to be cheaper than other forms of debt, so this will reduce the amount of money you will have to pay in the long run.
The equity in your home is the important factor in qualifying for a mortgage debt consolidation. As this is basically a refinancing of your mortgage, you will likely be made to qualify for a new mortgage, its ensuing qualifications and costs. To determine your eligibility lender may review your income, check credit your score and stress test you. The potential costs are a property appraisal and legal fees. Additionally to qualify you will need to have a minimum of 20% equity after consolidation, so the more equity in your home the better.
Do You Have a Variable Rate Fixed Mortgage Calculator?
With rising rates, the fixed payment on this type of mortgage may not cover the interest payment. This is known as “negative amortization,” potentially adding years to repayment or causing increased payments when renewing. Some lenders will give the option of increasing monthly payments at any time up to double.
Self Help by Adjusting Your Budget
To prepare for a mortgage renewal, consider adjusting your budget to create savings that can offset the increase in monthly mortgage payments. As an example, Credit Canada offers a Budget Calculator that allows you to cut items out of your budget, saving you hundreds of dollars monthly. You can also Google Credit Canada Budget Calculator.
Many Thanks to the following sources:
https://www.nerdwallet.com/ca/mortgages/new-fcac-guidance-at-risk-homeowners, https://www.creditcanada.com/blog/mortgage-renewal,
CENTUM Omni Mortgage Corp. Brokers & Agents.
