Struggling homeowners ask, “Can I hang on long enough for rates to come down?”
Scenarios like the ones below are playing out all across Canada, in big and small markets, as homeowners grapple with the effects of inflation and high interest rates. It may be a few years before we can all breathe a little easier but for now, many people are just looking for practical advice to get through until then. These are just a few examples of the questions we’re getting and the kind of advice our mortgage professionals would offer under these circumstances.
Do any of these scenarios sound familiar to you?
- “My spouse and I bought our home during the market peak when prices were very high and since then, prices have dropped significantly. So the home we worked so hard to achieve is starting to feel like a financial burden and frankly, we’re worried about the future.”
- “We bought our home with the minimum required down payment and took a variable rate because at the time it was so attractive. Now, with today’s rates, we’re finding it hard to make our mortgage payment and we’ve taken part-time jobs to help supplement our income. Selling isn’t an option because we’d have to sell at a loss. Plus, we worked so hard to get into the market and if we sell now, there’s no guarantee we’d be able to get back in! The extra work and constant worry are taking a toll on our physical and mental health.”
- “I’ve borrowed against my home with a home equity line of credit (HELOC) and with the decline in the real estate market, coupled with high interest costs on the HELOC, it’s becoming unmanageable.”
- “My spouse and I needed funds for an unexpected home repair, so we got an unsecured variable rate loan and only a little of our payment is going toward loan principal. Lately, our rate on the loan has gone up dramatically which is putting a huge strain on our household budget. Fortunately, we have a good amount of equity in our home, but we’re not interested in selling right now.”
Here are a couple of examples of how our mortgage professionals would respond to situations like the ones described above:
Danny Saikaley, Mortgage Broker
I understand that you are in a difficult financial situation and it’s important to take action to avoid further financial stress. Here are some steps you can take:
Consider locking in your mortgage if you are in a variable mortgage
Since your variable mortgage rate has triggered and you are paying a lot of interest, it might be worth considering refinancing your mortgage to a fixed-rate mortgage. This will provide you with a stable interest rate, which will make it easier to plan your finances. If in a fixed-rate mortgage explore options for longer amortization periods. You can also check with your bank or mortgage broker to see if they can offer you a better rate or to consolidate the HELOC into the mortgage to reduce the interest cost.
Look for ways to increase your income
If you have been working in your current job for a while, it might be worth considering a promotion or a job change that offers a higher salary. You could also consider taking on a part-time job or starting a side hustle to increase your income.
Reduce your expenses
Trim non-essentials from your budget, but it’s worth taking another look to see if there are any other areas where you can cut back. This could include things like eating out less, canceling subscriptions or memberships you don’t use, or finding ways to save on your utilities.
Consider renting out your home, townhome, or condo either entirely or partially
If you are struggling to make your mortgage payments, you could consider renting out your home to generate some extra income. Before you do this, make sure you check with your mortgage lender to make sure you are allowed to do so and what the terms and conditions are.
Seek professional advice
If you are still struggling to make ends meet, it might be worth seeking professional advice from a financial advisor or credit counselor. They can help you develop a plan to manage your debts and expenses and provide guidance on how to improve your financial situation.
Remember, it’s important to take action sooner rather than later to avoid further financial stress. By taking the steps outlined above, you can start to regain control of your finances and work towards a more stable future.”
Ross Taylor, Mortgage Broker
Concierge Mortgage Group
There is no reason to fear losing your home. This is your home, and it is in Canada (a world class real estate market) and in the long run, the value will be absolutely fine. There is no reason to sell.
As for your mortgage, your bank may want you to increase your payments to prevent the outstanding balance from going over the original amount you borrowed.
If this is too overwhelming, speak directly to your bank about temporarily stretching the amortization period of your mortgage to ease cash flow strain.
The bank may suggest you convert your mortgage to a fixed rate mortgage in the case of a variable mortgage, but that could put even more strain on your cash flow in the long run. Best to consult a mortgage broker professional.
Look at options to consolidate credit cards and HELOCs into your mortgage.
Also, a part time job might help here. Are there opportunities to take on freelancing gigs in your area of expertise?
Talk to your bank and mortgage broker to understand all possible solutions they can suggest to you. In addition to cutting costs as you are, look at generating additional part time income to help weather the storm.
If you’re wondering how (or if) you can hang on until rates come down, call your Invis broker and have a conversation. Bring up any concerns you have and together, you can formulate a plan that will keep you on track financially.