If you spend time listening to any news source these days, you hear a lot about homeowners who can no longer afford their mortgage. With this in mind, I would like to make every effort to help my existing clients keep their homes. I feel that there are two types of clients, those that need help now and those that will need help in the future when their mortgages are up for renewal.
For those needing help now, it all comes down to cash flow and not so much about rate. Here are my suggestions for these clients:
1) Payment frequencies –
check and see if you are making accelerated bi-weekly payments. When you
have spare cash, making more aggressive payments to pay down your mortgage
makes sense. In difficult times, this desire is not so great as controlling
cash flow. If you are making accelerated bi weekly payments, ask your
lender to set your payments back to monthly. This will reduce your monthly
outflow of cash and costs you nothing to do. Once cash flow is not such a
concern, you can request to go back to a more aggressive approach.
2) Refinance – Doing a refinance will cost you in terms of appraisal, legal costs and higher
interest rates but it allows us to extend the amortization on your mortgage
back out to 25 or 30 years. This will significantly reduce your monthly
payment.
3) If your mortgage was insured with CMHC, or a competitor, you can contact them directly and
explain that you are having issues making your mortgage payments. You need to do this as soon as you feel you are in financial difficulty. They will work with you and your lender to try and keep you in your home.
For those who are comfortable today but worried about what will happen in the next few years when their mortgage is up for renewal ( and interest rates are higher), I recommend the following:
1) Call me and I can give you a rough idea as to what your payments might look like in a higher
interest market. This may give you some peace of mind or maybe have you
consider taking some action now. Better to be forewarned.
2) Consider a variable rate mortgage as they are currently more competitive than fixed rate terms.
Variable rate mortgages are linked to the Bank of Canada’s prime lending
rate so they might go up but many economists feel that further rate hikes
are unlikely. Once fixed rates hopefully come down in the next few years,
you can convert your variable rate to a lower fixed rate at any time with
cost or penalty.
3) Use your prepayment options to pay down your mortgage as much as possible. When your mortgage is up for renewal, your mortgage balance is significantly lower but your
remaining amortization period is also less than it would be otherwise. With
a shorter amortization your mortgage payment will go up as a result of the
higher interest rates. To help with this, we can ask the new lender to push
your amortization back out. Having both a lower mortgage balance and a
longer amortization period will help to reduce your new mortgage payment
even though rates are higher.
Please contact Bob Alexander for further information about this commentary or to discuss your
Mortgage Action Plan.
Your Mortgage Doctor
Bob Alexander,
B.Comm, CMA, CPA, AMP
403-241-3949