BEAT THE BANKS! 5 Sneaky Tricks to Help You Through A Rising Mortgage Renewal!
BEAT THE BANKS! 5 Sneaky Tricks to Help You Through A Rising Mortgage Renewal!
Genius Ways to Crush Your Mortgage Renewal Payments and Save Big!
You Are NOT Alone!
80% of all mortgages that were outstanding as of March 2022 will come up for renewal in 2024, but in 2022 the average fixed rate on 5-year mortgages back then was 1.97%, today most everyone is keenly aware that renewal rates are much much higher! In today’s article, we are going to help you get some ideas on how you can survive renewing your mortgage in today’s sky-high interest rates!
If you’re a Canadian worrying about your mortgage renewal in 2024 and you have a really low rate, you’re not alone. Most other Canadians are in the same boat. Over 80% of mortgages are up for renewal in 2024, affecting about 3 million Canadians. This means a lot of people are concerned about possibly facing higher interest rates. The Bank of Canada predicts that by 2027, monthly mortgage payments could go up by as much as 54% for some borrowers, adding even more stress to the situation.
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So what do you do about it?
Well In this article, we’ll share 5 simple ideas you can use before and during your mortgage renewal to help you through this tough time. And if you combine one or all of these strategies, you should be able to confidently get through the tough year ahead on your mortgage. BUT! Burying your head in the sand, and hoping it will work itself out is NOT THE ANSWER. Being proactive can help you deal with rising rates better and help you feel more confident about renewing your mortgage. Let’s check out these five incredible tips to help you prepare and make smart mortgage choices.
Number One — Don’t Just renew at the bank — Use a mortgage broker
This is often a really great thing to do even if you are not facing a high-interest rate renewal.
When you renew your mortgage at the bank, it’s highly unlikely you will get their best rate right away. From my experience in working with clients and handling my own mortgages, I’ve found that the rates the banks offer at first — are usually higher — anywhere from 50 basis points to even a full percentage point higher than what you can get at another bank of credit union. It’s only when you mention moving your mortgage, that they might “suddenly” offer you a better rate. And by the way — it’s still highly unlikely to be their best rate, and it’s very likely you will still — even after they have lowered it — get a better rate at a competing bank or credit union.
However, applying for a mortgage at many different banks and credit unions can be a real hassle. It means gathering lots of paperwork, meeting with different lenders, applying at multiple places, and comparing rates, all of which take up a ton of time and effort. After doing all this, you might find the potential savings of a mere 50 basis points on your mortgage, might not feel like it’s worth all that trouble.
Mortgage Brokers, Your Hidden Superpower!
This is where mortgage brokers can step in to save the day. They take care of all the hard work for you, finding the best deal that suits your needs without all of the stress of dealing with multiple lenders yourself.
A mortgage broker is a licensed professional charged with securing a mortgage for you, their client. They function as an intermediary between you and many potential lenders — not just one. They offer guidance and ensure the accuracy of all your paperwork. Additionally, when mortgage brokers engage A-lenders, their services generally come at no cost to you. This is because the lender pays them upon the successful closure of the mortgage.
Beware the HARD Inquiry
Not only that, When dealing with major banks like TD, BMO, RBC, or others, you’ll need to apply separately to each to determine your pre-approved amount. This could cause what are called hard inquiries, and each time you apply, it can slightly reduce your credit score — hampering your ability to get a mortgage quote at the next bank. A hard inquiry, or ‘hard hit,’ is done by a lender and shows up on your credit report for anyone who asks to see it. Examples of when you might have a hard inquiry would include things like applying for a credit card, loan, job, or rental agreement.
A soft inquiry, also called a ‘soft hit,’ is when someone checks your credit report but it’s just for your own eyes. It doesn’t affect your credit score and nobody else can see it. Soft inquiries include when you want to see your own credit report or when companies need to update their records about an account you have.
Mortgage brokers offer a convenient one-stop solution for clients by providing access to a wide range of potential lenders. With just one credit inquiry affecting your score, they can explore numerous options for you, often securing you the most competitive rates and fast approvals. In short, you provide your information one time to a mortgage broker, and they essentially take your mortgage and shop it around to multiple institutions and find the best rate for you. Best of all they get paid by the lender — so there usually is no additional costs to you.
Mortgage brokers also are very flexible in scheduling and communication. Many are available beyond regular bankers’ hours, are generally far more reachable, and are open to conducting meetings and handling essential paperwork through text, email, and platforms like Zoom or Teams. For those who prefer a more private approach, engaging with an online mortgage broker allows for transactions without the need for face-to-face meetings.
Mortgage brokers are also often able to get their clients approved, even when banks deny them because they work with so many different lenders, including credit unions and private lenders.
So if you are someone with a less-than-perfect credit score or have a unique financial situation, mortgage brokers are generally a lot more successful in getting you the loan you need.
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Number Two— If Possible — try to make as many lump sump payments on your existing mortgage without penalties
Making as many lump sum payments as possible towards your mortgage early — without facing penalties can significantly reduce the amount you owe before your mortgage matures. Many financial institutions allow you to put down up to 20% or even 25% of your mortgage balance each year without incurring any penalties. Not only can this strategy lead to substantial savings over time, but it can lower the amount you owe when it comes due. If your mortgage comes due during a period of high interest rates, by lowering the principal amount owed, even in a high-interest rate environment, you could meaningfully offset the impact of higher payments, making your mortgage more manageable in the long run.
Number Three — Increase your Amortization period
Increasing the length of your mortgage amortization, although not the most ideal solution, could provide temporary relief by reducing your monthly payments, especially during periods of high interest rates. By extending the repayment period, you can lower your immediate financial burden while still meeting your mortgage obligations. Now you are going to pay a lot more in interest and pay off your house later, but this strategy does allow you to maintain ownership of your home and navigate through the challenges of high-interest rates with a lower risk of default. However, it’s essential to reassess your situation regularly and consider shortening the amortization once interest rates decrease. If you’re currently on a 20-year term, contemplating a move to a 25, 30, or even 35-year amortization period if available. This move might be worth considering to alleviate immediate financial strain and ensure sustainability in the face of elevated interest rates.
Number Four— Find Extra work
Another strategy to cope with higher mortgage payments is to explore additional sources of income. Finding extra work through a side gig, side hustle, or part-time job can help cover the additional financial burden of increased mortgage payments. By dedicating time and effort to supplementary income streams, you can bolster your financial stability and ensure that you can make ends meet despite the higher expenses. Whether it’s freelancing, tutoring, driving for a ride-sharing service, or taking on weekend shifts, leveraging your skills and resources to generate extra income can provide valuable support during challenging times. This proactive approach allows you to maintain your mortgage payments without compromising your overall financial well-being.
Averages
The average mortgage payment in Canada rose from around $1,415 in 2019 to $1,984 in the first quarter of 2023. This represents a significant increase of just over $500. Now, according to this other calculator, the increase could range anywhere between $500 to over $700. If you are single you will have to make an extra 161.53 per week to stay afloat. If you’re married, this means both you and your spouse would need to find an extra $81 per week to cover the additional mortgage payments if you’re both employed. While this may feel tight and unappealing, it’s not impossible to manage with careful budgeting and potentially seeking additional sources of income.
Number 5 — Consult With an Investment advisor Portfolio manager
Consulting with an investment advisor or portfolio manager can be instrumental in identifying additional sources of savings within your current investments and expenditures. By reviewing your investment portfolio and financial situation, these professionals can offer insights and strategies to optimize your returns and reduce unnecessary expenses. They can help you reallocate investments, minimize fees, and maximize returns, potentially freeing up funds that could be used to offset the increased mortgage payments when they come due. Additionally, they can provide guidance on budgeting and managing your finances more efficiently, allowing you to make informed decisions to bridge the gap between your current income and mortgage obligations. Collaborating with an investment advisor or portfolio manager can thus serve as a proactive step towards ensuring financial stability and meeting your mortgage obligations with confidence.
The Bottom Line
Navigating the challenges of renewing your mortgage into a potentially higher rate requires careful consideration and proactive planning. Whether it’s exploring alternative lenders, making additional lump sum payments, or seeking extra sources of income, there are various strategies available to mitigate the impact of rising interest rates. Consulting with professionals such as mortgage brokers, investment advisors, and portfolio managers can provide invaluable guidance and support in making informed decisions tailored to your individual financial circumstances. By taking proactive steps and leveraging available resources, you can navigate through the complexities of mortgage renewal with confidence and secure your financial well-being for the future.
Did you know that navigating the uncertainties of the markets and your finances is generally smoother with the support of an investment advisor or portfolio manager? Studies consistently reveal that individuals who work with investment advisors and portfolio managers tend to have up to three times higher net worth on average, but that’s not all, there’s a significant impact on overall well-being, with those who seek professional advice exhibiting higher levels of happiness and lower anxiety. Having a guiding hand through the financial landscape proves beneficial not only in terms of monetary outcomes but also in fostering a sense of security and contentment, making the challenges of an uncertain year more manageable with professional assistance.
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Joe A. Macek, FMA, CIM, DMS, FCSI
Investment Advisor, Portfolio Manager
iA Private Wealth
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This information has been prepared by Joe Macek who is an Investment Advisor Portfolio Manager for iA Private Wealth Inc. and does not necessarily reflect the opinion of iA Private Wealth. The information contained in this newsletter comes from sources we believe reliable, but we cannot guarantee its accuracy or reliability. The opinions expressed are based on an analysis and interpretation dating from the date of publication and are subject to change without notice. Furthermore, they do not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. The Investment Advisor Portfolio Manager can open accounts only in the provinces in which they are registered. iA Private Wealth Inc. is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. iA Private Wealth is a trademark and business name under which iA Private Wealth Inc. operates.
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