As inflation soars to a 40-year high, and with interest rates expected to continue rising, many Canadians are feeling financially stretched. For those with a mortgage up for renewal, the prospect of dealing with higher mortgage payments is very real. That said, there are a number of strategies that can help offset higher borrowing costs and maintain financial stability.

Extend your amortization period 

One of the simplest ways to reduce your monthly mortgage payment is by extending the amortization at renewal. The amortization period you select affects how long it will take to repay the loan, and spreading the balance over more time will result in lower payments. It also means you’ll be paying more interest in the long run but, for many, increasing the overall cost of the mortgage to secure more affordable payments is worth the trade-off.

Refinance your mortgage

If you’re carrying a high debt load and/or you’re feeling like your cashflow is tight these days, ask your mortgage agent about taking advantage of some of your home equity through a refinance. 

It’s important to keep in mind, however, that breaking your current mortgage before the term is up and refinancing into a new mortgage means you’ll face a penalty. The penalty will vary based on your lender as well as the amount of time you have remaining on your current term. Of course, the longer the remaining term, the stiffer the fees for breaking your mortgage. 

Your mortgage agent can advise you on whether a refinance makes sense after looking at the payout penalty on your current mortgage and weighing it against the benefits of gaining access to your home’s equity now.

In many cases, refinancing right away is worthwhile. Other times, waiting a little longer so you’re closer to the end of your current mortgage term makes the most sense for your situation. Either way, you’ll know where you stand and can make future plans accordingly. 

Pay down your debt 

Before rates rise even further, pay down as much outstanding debt as possible, making sure to start with the ones carrying the highest interest rates such as credit cards. Lowering your debt load means you’ll have less difficulty dealing with higher rates on any remaining balances.

Track your expenses 

With the cost of almost all aspects of living on the rise, it’s important to know where you stand every month. Keep a budget and track spending to help identify areas where you can cut back as life becomes more expensive. 

Curb your spending 

One of the most significant areas we’re feeling the squeeze is at the grocery store. Although we can’t forego sustenance, there are a number of ways to save on food costs. Stock up on non-perishable items when they’re on sale, check your local flyers to compare prices, and buy only what you need to avoid waste. 

Go easy on retail shopping too. With many people feeling stressed, a trip to your favourite shop can improve your mood – either online or in-store – but before making a purchase, be sure to compare the absolute need, versus the emotional want.

You can also alleviate unwanted pain at the gas pump by avoiding rapid acceleration, speeding and sudden breaking, which expends more than when driving smoothly. Download a gas price tracking app to find the best price in your area, and don’t wait until the tank is empty to fill up – top it up whenever prices drop. 

Take a staycation 

Unless you’re paying for a vacation outright, avoid adding to your debt by making the most of where you live. Enjoy day trips and backyard BBQs, go for walks or bike rides and take advantage of events in your community. Keeping busy and having fun doesn’t have to cost a bundle. 

The current rate of inflation is higher than originally predicted and, as long as the Canadian economy remains overheated, interest rate hikes should be expected. Exercising a bit of financial restructuring may, therefore, be the best solution to help get you through. 

The next Bank of Canada rate announcement is scheduled for September 7th, 2022. 

Have questions about your mortgage payments or your mortgage in general? Answers are a call or email away!

 


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