For over twenty years, mortgage interest rates in Canada have lowered, making a "mortgage maturity date" an event looked forward to by many borrowers. That's because, at the end of their mortgage term, borrowers traded higher interest rates for lower ones and even consolidated expensive unsecured debt into their home loan. They acquired the benefits of lower monthly payments and more room for monthly savings.
Today, things have changed. Bidding wars are no longer typical. Houses for sale are flat (some with no offers). New mortgage rules make mortgage qualification extremely challenging, and interest rates are increasing.
According to Bank of Montreal, 47% of mortgages are set to renew within eight months, and according to betterdwelling.com, rate hikes would hurt approximately 63% of mortgage holders in 2018. That's because 30% of mortgages are currently variable rates. And, in light of the new drastic and consecutive rate hikes initiated by the Bank of Canada, fewer people will be comfortable taking a variable rate product.
The reality is striking.
What can borrowers do today?
When it comes to mortgage approvals, appraisals are almost always required by banks & other various lenders. Appraisals determine a property's value, so, in order to refinance and even consolidate unsecured debt, the value must be sufficient. With homes becoming more difficult to sell, and purchasers experiencing financing difficulties, the value of home prices are slowly decreasing. This translates to lower appraisal values.
One way borrowers may find it difficult to cope with rising interest rates is if they have a fair amount of unsecured debt. Credit cards and other loans can become very costly and difficult to pay down. Refinancing or debt consolidation may no longer be an available option for the many of Canadians who rely on their home's equity to bail them out of more expensive debt.
One should seriously consider refinancing soon to optimize on the following:
Feel free to call with any questions.
Wong, Daniel. "Bank of Canada: Half of Canadian Real Estate Mortgages Will Renew By Next Year." Better Dwelling. November 29, 2017. Accessed February 04, 2018. https://betterdwelling.com/bank-of-canada-half-of-canadian-real-estate-mortgages-will-renew-by-next-year/amp/.
"BMO: '47% of Canadian mortgages are due to reset within 1 year'." The Globe and Mail. November 29, 2017. Accessed February 04, 2018. https://www.theglobeandmail.com/globe-investor/inside-the-market/bmo-47-of-canadian-mortgages-are-due-to-reset-within-1-year/article37122628/.
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By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929