WITH RATES UP, NOW WHAT?

How can you leverage the myriad of options and get creative to navigate rate hikes? Mortgage expert Angie Alvarez of Capital Home Lending shares her insight from people’s ‘most’ asked questions!

How have rising interest rates affected mortgage payments?

Anyone in a variable rate mortgage will be impacted with increased payments, including those with static or fixed payments. Mortgage payments have gone up about 30% since March 2022. Anyone who is up for renewal will also see a jump in their payment by approximately 30%.

What is the ‘trigger point?

The trigger point is when you reach a threshold where you are no longer covering the principal and only paying interest. At this time, over 50% of Canadians have hit their trigger point.

Your bank may automatically increase your payment amount to match your original amortization schedule or notify you so you can look at options.

What are my options if I hit my trigger point?

You will have to adjust your payment to match your existing amortization or you can do a lump sum payment to bring you back to that same schedule but this would warrant a discussion with your lender.

Should I opt for a fixed-rate or variable-rate mortgage in a rising-rate environment?

It depends on your circumstances, however, the shorter-term fixed rates are generally favored in this environment. Consider it like an insurance policy – where you can ensure your affordability. If you are not looking at holding onto the property you might want the flexibility of a variable mortgage to avoid a larger penalty upon sale.

Is it a good time to refinance my mortgage?

Potentially – if you are affected by a higher interest rate you may want to renegotiate to extend your amortization schedule to help with cashflow or establish a lower monthly payment- you can look at options with your lender. You may pay a penalty to break your existing mortgage but some clients are opting to do so with the longer-term benefit and peace of mind of a stable payment until the economy and inflation stabilizes, and then reevaluate in a few years.

What strategies can I use to mitigate the impact of rising interest rates on my mortgage?

You can add lump sum payments depending on your prepayment privileges to offset and pay down the principal which can help balance the increased rate and reduce the amortization period.

Some clients are opting to refinance secondary properties as the interest payable is a tax write-off against income-generating properties and pay down their primary residence. Alternatively, they might choose to sell their secondary properties altogether.

Parents as co-investors….some clients who are considering downsizing or have considerable equity in their residence are looking at paying down or assuming a portion of their kids mortgages and having a lower interest be paid to the parents instead of the bank.

What about alternative lending?

Alternative lenders, because they offer extended ratios and niche programs to increase purchasing power, can be a temporary solution to get someone into the market – this works well for buyers who are not as concerned about affordability but may not qualify under traditional ‘A’ lenders.

Once they have established more equity in 1-3 years they can look at switching back to a Tier 1 or ‘A” lender at a lower rate. You can expect alternative ‘B’ lenders to range from 1-2% higher than traditional lenders.

Still have questions?
Reach out to Angie today!

Angie Alvarez
(416) 315-6261
[email protected]