Renewing your mortgage in 2023? We need to talk.

Over 1 million mortgages in Canada are up for renewal in 2023, according to CMHC. If you are in this group, my advice is… talk to your Invis or Mortgage Intelligence broker early!

In their effort to avoid a recession in the second half of 2023 and achieve the fabled economic “soft landing”, while attempting to reduce inflation, the Bank of Canada increased its overnight rate to 4.5% on January 25, 2023. This means the best 5-year fixed mortgage rates in the marketplace are priced close to 5% for insured mortgages (less than 20% downpayment) and closer to 6% for uninsured mortgages (more than 20% downpayment). There’s simply no getting around it: today’s rates are some of the highest we’ve seen in a very long time.

Every mortgage holder should be allocating any available household cash to paying down debt, thereby reducing their vulnerability to rising rates. 

  • Start with your highest-rate debt. Credit card interest rates aren’t affected by what the Bank of Canada does, but they carry a high rate of interest and should be a top priority for debt repayment. 
  • If you’re carrying a hefty balance on a home equity line of credit (HELOC), you are vulnerable to rate increases every time the Bank of Canada increases its overnight rate. HELOCs require a minimum monthly payment of interest only, which means they’re flexible and easy to manage but every increase in the Bank of Canada overnight rate is promptly reflected in the cost of carrying the HELOC.
  • Beyond mortgages and HELOCs, consider how your vehicle needs will expose you to higher rates. If you plan to buy a new vehicle, you’ll find that the 0% financing so common a couple of years ago has been replaced with financing rates of as much as 5 to 8% for popular cars and SUVs.
  • Now is not the time for an investment loan! Don’t listen to anyone telling you it’s better to use that money to invest. Investing doesn’t produce guaranteed results and the return you would need to cover the loan cost is too high. Debt reduction, on the other hand, does provide a certain return. In other words, if your mortgage is renewing this year, suspend investing in RRSPs and TFSAs until next year.

The Bank of Canada will reduce interest rates once it deems inflation is under control and the economy once again requires its intervention to begin revival. Your Invis or Mortgage Intelligence broker will provide you with various options for short-term fixed rate and variable-rate products to put you in a position to take advantage of interest rate reductions expected in 2024 and 2025. 

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