The Toronto real estate market is soon going to feel the real impact of the recent Bank of Canada interest rate hikes. On July 13, the BOC raised interest rates by 100 basis points to 2.5%. The hike was even higher than what experts were anticipating with the increase immediately reflected in mortgage interest rates across the country.
Lock in variable rate mortgages
Toronto homeowners who have a variable rate mortgage should have already locked in their rate. But, if you haven’t yet, then now is definitely the time as there is another rate hike anticipated in September. And, should inflation continue to rise, then more hikes could be in the pipeline. Locking into a rate that you can afford now, is better than hoping that the rates will stabilize and come down soon.
What if your mortgage is only set to renew next year?
Chances are interest rates will remain high for the next few years. If you foresee renewing your mortgage at a high interest rate, your best strategy is to start paying down as much of your mortgage as you can right now. Even if that means lowering the amount you are saving for retirement for a few years. Paying down as much as you can so that when you renew, you do so with a lower principal amount will help ease the sting of a higher interest rate.
You need to renew but can’t afford the new interest rate at your current amortization?
If your mortgage is up for renewal and you simply cannot afford the payments based on the new interest rates and your current amortization, you can always opt to increase the amortization period. In Canada you can amortize your mortgage over 25 years.
Mortgage still too high?
If you cannot afford your mortgage at a new, higher interest rate and you have the room (and temperament), consider renting out a room in your home or a portion of your home to help cover the costs. If you have friends or family members who are willing to let you move in with them short term, you can even consider renting out your whole house to cover your mortgage until you are able to afford the payments again.
Preparing for a rate hike and handling a rate hike is not fun or easy – but it can be done. With a little discipline and proper planning you can structure your finances so that you can keep your home.