6 ways to alleviate mortgage stress
Discover 6 effective strategies to alleviate your budget concerns & mortgage stress, especially when it comes to your mortgage. In the face of increasing prices and elevated interest rates, leverage these intelligent options to either save money or create more financial flexibility.
Want to get ahead of rising rates to save more? Or really need some extra budget room? Do you have mortgage stress?
That budget ‘relief’ can look different for every client:
- Access a lower rate
- Improve affordability or free up monthly cash flow
- Pay off your mortgage faster
- Reduce your other debts
- Take advantage of home equity
Whether you’re buying a home or already have one, here are some smart ideas to help make your mortgage work for you.
1. Save with your better rate, right off the start
It’s clear that securing the best and lowest rate you qualify for is a smart strategy to save thousands. Opting for your bank when purchasing a new home might lead to a higher rate, as they often rely on your loyalty rather than aggressively competing on rates.
While our lowest advertised rates apply to specific products, rest assured that, regardless of your circumstances, we can provide tailored suggestions to help you qualify for the absolute best rate based on your application details. If you’re gearing up for home-shopping soon, securing your best rate now is advisable before any potential rise in interest rates.
2. Opt for a Lower Rate or Improved Mortgage Product
If you’re experiencing remorse over the higher mortgage rate from your major bank, consider reaching out to us at any time, particularly during your mortgage renewal period. We can assess the possibility of transitioning you to a more favorable rate without any cost, and there’s no obligation to enlist our assistance.
Alternatively, you might contemplate breaking your existing mortgage to secure a superior rate or product, such as one offering enhanced pre-payment privileges. This move could prove beneficial in advancing your financial goals.
Another option is transitioning from a fixed rate to a variable rate, with the anticipation that rates will decrease within your term. However, it’s important to note that variable rates carry the risk of change, influenced by prime rate adjustments and shifts in the Bank of Canada policy rate.
3. Opt for conventional
If you’ve set aside funds for a holiday or a significant purchase, consider incorporating them into your down payment, boosting it to a minimum of 20% of the home price to qualify for a ‘conventional’ mortgage. Opting for this approach not only reduces the size of your mortgage and monthly payments but also grants the flexibility to extend your loan term to 30 years, resulting in even more affordable payments (details below). Additionally, you’ll be exempt from the mortgage default insurance required for high-ratio mortgages (those with less than a 20% down payment).
The savings disparity on a $500,000 home, comparing a 10% down payment to a 20% down payment (with a standard 25-year amortization), exceeds $51,000! While a conventional mortgage typically carries a slightly higher interest rate (due to the absence of insurance on the loan), the overall savings remain substantial.
4. Trim Down Other Debts
Consider refinancing if you’re juggling other debts with higher interest rates. This strategic move involves consolidating your loans into a single mortgage payment at a more favorable rate. Not only does this assist in cutting down on interest expenses, but it also creates additional breathing room in your budget. The key here is exercising discipline to avoid accumulating new debt from other sources and concentrating on reducing the balance of your new mortgage.
Consolidate multiple loans into a single mortgage:
- Experience a higher monthly mortgage payment, but sidestep the hassle of managing various payments.
- Escape the incremental costs associated with multiple loans.
- Unlock potential savings amounting to thousands in interest expenses, contributing to enhanced cash flow.
5. Accelerate Your Mortgage Payments for Substantial Savings
If your budget allows, consider increasing the frequency of your mortgage payments to unlock significant interest savings and expedite the payoff of your mortgage.
Wondering how much you could save by transitioning from monthly to accelerated bi-weekly payments? Let’s consider a scenario: a $500,000 home with a minimum 5% down payment (resulting in a high-ratio mortgage requiring default insurance) paired with a 5-year fixed rate of 5.0% and a standard 25-year amortization.
Over the initial 5 years alone, this adjustment could yield savings exceeding $2,000. Stretching across the entire mortgage term, you could trim approximately 3.5 years off your payment schedule, resulting in an impressive $60,000 in interest savings.
6. Transfer Your Rate and Mortgage to a Different Property
Several lenders and mortgage products come equipped with a portability feature, enabling you to move your existing rate and product from one property to another, subject to government restrictions and lender conditions.
If you’re contemplating a move, the option to carry your lower rate with you, or even obtain a blended rate that remains advantageous, can be a strategic move to manage your budget effectively for your new home.
