Our expert Alberta mortgage broker team has been watching the latest changes in the housing and mortgage markets. The rise in interest rates has made a big impact on both homeowners and borrowers alike. Inflation has reached a historical high in Canada and many other countries. The Bank of Canada has raised benchmark rates as a way to stop rising inflation from becoming a persistent issue. How does this impact the mortgage process for you?
A rise in interest rates can have a big impact on your current mortgage loan, especially if you have an adjustable-rate mortgage. Those with a fixed-rate mortgage won't really feel the impact until it comes time to renew their mortgage. Those with an adjustable-rate mortgage will feel the impact right away as their monthly repayments rise significantly. This can make monthly repayments harder to make, leading to defaulting on the loan.
As a homeowner, you need to go over the terms of your current mortgage to see what type of rate you are paying (fixed or adjustable rate), what that rate is set at, and when your renewal date is, Rising rates will affect how much you owe at the time of renewal because of a rise in interest rates.
Anyone who has taken a mortgage loan out in the past 4 years may be shocked when it comes time to renew their mortgage. If they want to stick to their amortization schedule, it will mean payments rising. You may find that your current mortgage doesn't meet your financial needs when it comes time to renew.
Variable-rate or adjustable-rate mortgages will fluctuate along with the market. When interest rates rise, more of your monthly repayment amount goes towards the interest rather than the principal, which means it will take longer to repay your mortgage. This means that, when it comes time to renew, your outstanding balance will be higher than originally planned. Staying with your current amortization period means higher repayments, or you could extend the amortization period through a refinance. However, you will need credit approval to do so.
A fixed-rate mortgage will protect you from a sudden significant rise in rates and repayments, which gives you a bit of breathing room to plan what you will do when it comes time to renew the mortgage. You may get lucky and see a drop in rates by the time your renewal date comes around. However, if rates remain the same or rise more, you will more than likely get a higher fixed rate than you had.
For those looking to take out a new mortgage, the current mortgage stress test and rising rates could make it harder to qualify for a mortgage loan. What you were able to afford a year ago may be impossible to afford now. However, the market environment is always changing and all we can do for now is watch and plan as best as we can. Knowing where you stand with your mortgage rate, renewal date, and term can give you a head start when it comes to planning for an eventual rise in interest rates. You may choose to make lump sum payments towards the principle of your mortgage as a way to keep the overall amount owed down when it comes to renewal time.
If you have questions or concerns about how the rise in mortgage rates can affect you, give our expert Alberta mortgage broker team a call today and we'll help you plan for the changes ahead.