People are keeping a close eye on the cost of living in Canada, especially with rising interest rates impacting mortgage affordability. Understandably, they are concerned about their financial well-being after several Bank of Canada interest rate hikes and the cost of inflation cutting into already delicate budgets.
This informative guide deep dives into how fluctuating interest rates impacts mortgage holders and offers tips for helpful money-saving solutions.
The Bank of Canada’s Recent Decision to Raise Interest Rates
The Bank of Canada’s (BOC) main goal or purpose is to control inflation to 2% per year. When inflation exceeds this target, the BOC raises interest rates to help control housing costs and consumer spending.
With increased lending rates, people and businesses are less likely to borrow or spend on less essential items. As a result, this approach slows the demand, cooling prices off and allowing the supply chain to catch up.
The BOC’s recent decision to raise interest rates was necessary to correct the economy. This change may have helped investors; however, it was strenuous for those interested in purchasing a home or current mortgage holders.
What This Means for Mortgage Holders—Especially Those With Adjustable-Rate Mortgages
For property owners still within their fixed mortgage term, their rate was unaffected, keeping their principal plus interest payments the same. So, unless their mortgage came up for renewal, they saw less impact than those with an open or adjustable-rate mortgage.
An open mortgage is calculated based on the current prime rate plus a percentage. Ongoing rising interest rates saw drastic changes to homeowners’ open mortgage payments.
For some, their overall payments stayed the same, but the amount paid to interest increased. It meant less money went towards their principal. Others saw drastic payment increases—especially for those financing revenue properties. The result was increased housing payments for property owners and renters alike.
Ways to Prepare for Potential Increases in Your Monthly Mortgage Payments
You can help ease the pain from mortgage payment increases in a few ways., including:
- Pay Down High-Interest Debt – paying down high-interest debts first, such as credit cards, helps to reduce monthly payment amounts and frees up more cash.
- Shave Your Budget – eliminate unnecessary expenditures and find cost-effective ways to save at the grocery store, the gas pumps, and entertainment.
- Consolidate Debt – carrying several separate credit cards and loans drive up your monthly payments and interest costs. Consolidation loans help to lower the total amount into one convenient, less expensive loan payment.
How to Get the Best Interest Rate on a New Mortgage
Getting the best interest rate on a new mortgage comes down to your prowess as a borrower and finding the right mortgage provider. Here is what you need to do:
- Clean up your credit and increase your score
- Steady employment or income
- Save up a down payment
- Improve your debt-to-income ratio (DTI)
- Consider alternative loan types or term options
- Comparison-shop among lenders with a broker.
- Lock in your rate.
Tips for Refinancing an Existing Mortgage
Every borrower is unique; their payment and employment history, current budget, and expected term affect how a lender considers your application. Then, they craft a proposal that includes the interest rate, term, and applicable fees.
So, along with being a strong borrower, it is wise to use a mortgage broker who can “shop” your mortgage renewal or refinancing to available lenders.
Take the Worry Out of Interest Rates With Experts Who Care
Mortgage shopping shouldn’t feel uncertain or confusing. Instead, have trusted professionals do all the work for you. Axiom Mortgage Solutions has the knowledge and expertise to help negotiate the best mortgage rates and terms for your budget and situation. They provide the guidance you need to navigate rising interest rates, now and in the future. Feel confident again by scheduling a consultation online or by calling 519-735-1440 today!
