Last year, many homeowners escaped the burden of rising interest rates pushing their mortgage payments higher. That will soon change.
Interest rate increases don’t immediately affect all existing mortgages. For example, if you have a five-year mortgage at 3 per cent interest, that interest rate remains for the full five years.
When your mortgage comes due, and you must renegotiate, that’s when you’ll be subject to prevailing interest rates.
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Canada Mortgage and Housing Corporation recently outlined the specifics.
Just 300,000 homeowners have renewed their mortgage. Over the next two years, over two million households will have their mortgage ended. And that is when higher interest rates begin.
This will present a financial challenge. And when there is a financial challenge, it is advisable to develop a strategy to manage your personal finances as best as possible. There are many steps to consider.
Identify how much more expensive monthly mortgage payments will be. That provides a target of how to accommodate higher payments.
Are there regular expenses that you can eliminate or reduce? Perhaps you can postpone next year’s vacation or go out for dinner less often.
Can you increase your income? This could include asking for a raise in your salary, work overtime, get an additional job that can be done during your time off, or perhaps a nonworking spouse can get employment either full-time or part-time.
Another option is to rent part of your house. There is a housing crisis, and many are looking for accommodation. Students will likely want a one bedroom while another family member might be comfortable house sharing.
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Like most things in life, there are trade offs. Consider how much money you need to make ends meet. Think of all your options available. Use creative thinking to see how you can be successful at paying higher mortgage costs.
Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com.
