How to prepare for your mortgage renewal when interest rates are high.
Here are 5 things you can do to prepare for your mortgage renewal when interest rates are high:
1. But first, some background.
Over the last 50 years in Canada, the average interest rate has hovered between 5% to 6%. So while it may seem like today's rates are looming above us, they're actually quite average (all things considered). Sure, today's interest rates may not be as jaw-droppingly low as they were in recent years, but they're still sitting at a reasonable rate in the context of history.
So, let's shed some of that doom and gloom around interest rates and embrace the fact that, with a bit of preparation, renewing your mortgage doesn’t have to be a stressful process.
Ready to do this?
2. Explore the current interest rate landscape
Over the past year, the Bank of Canada aggressively raised interest rates from 0.25% to 4.50% to help combat inflation. Currently, Canadian interest rates are hovering between 4.50% and 5.00%, with no signs of dropping significantly in the coming years.
So, if you're planning to renew your mortgage in the near future, brace yourself for higher monthly payments due to higher interest rates. For example, if you locked in a mortgage rate at 2.00% to 3.00% five years ago, your interest rate is likely to double, or even triple, when it comes time to renew.
The good news is: now you know. And staying up-to-date with the current interest rate landscape can help ease the transition to higher rates when renewal time comes.
3. Plan ahead for your renewal
4. Take advantage of pre-payment options
5. Compare fixed vs. variable rates
When your mortgage renewal is coming up, one of the biggest decisions you'll have to make is whether to renew with a fixed or variable rate. Let's break it down.
- Fixed-rate: A fixed-rate mortgage means the interest rate remains the same for the entire term of the mortgage, and your monthly payments stay consistent.
- Variable-rate: On the other hand, a variable-rate mortgage means that interest rates can change based on fluctuations in the prime lending rate set by the Bank of Canada, resulting in fluctuating monthly payments.
So, which one should you choose when you renew?
While variable rates have historically been attractive due to their lower interest rates, the current interest rate landscape has made fixed rates a more appealing and stable option for homeowners. All that being said, everyone’s situation is unique. So, be sure to talk with your lender to find the right option for you.
Connect with us.
Remember, we’re here for you. If you’re feeling anxious about your mortgage renewal and are in need of some support, you can count on the connectFirst team to guide you through the process. We'll discuss your options and provide you with personalized advice so that you can make the best decisions for your financial future.