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Own a home? Here’s how to tackle soaring interest rates, monthly mortgage payments

Click to play video: 'Higher interest lending rates affecting Canadian homeowners'
Higher interest lending rates affecting Canadian homeowners
WATCH: For the sixth time in seven months, the Bank of Canada has raised its key interest rate, this time to 3.75 per cent. Ross Lord explains – Oct 26, 2022

More and more homeowners are feeling the financial squeeze as interest rates climb, and some mortgage professionals are predicting the Bank of Canada will raise them further this September.

“We are hearing 75 basis points to a full per cent,” Port Coquitlam-based mortgage specialist Angela Calla told Global News.

For Canadians on a fixed rate and up for mortgage renewal, it could mean serious sticker shock with higher monthly payments, she said.

“People are going from being in fixed rates of two per cent to the high fours and fives, so on $500,000-mortgage you can see a payment increase of $500 a month,” she explained.

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That increase, coupled with high food and gas prices, can make the cost of living even more difficult.

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Calla suggested having a mortgage strategy in place to ease the financial stress.

“Don’t wait for your renewal date. Get a rate hold in now,” she advised.

“Go to an independent professional that can review all the options because you may want to look at extending your amortization if your new payment increases are not within your budget.”

Click to play video: 'Tens of thousands of Canadians could soon reach mortgage ‘trigger point’'
Tens of thousands of Canadians could soon reach mortgage ‘trigger point’

Those homeowners who are on a variable rate and thinking about locking into a fixed rate need to assess their risk tolerance, Calla added.

“If you are on a variable rate mortgage you should review the discount you have. You should review your financial plan if you are planning on moving or making any lifestyle changes in the next five years, and you should understand what a fixed rate option is today.”

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With mortgage rates on the upswing, credit counselling experts also say it’s a good time to look at reducing non-mortgage debt.

“It’s all about trying to calm the waters and looking at your entire financial picture. Look at all the opportunities to manage and change some things,” advised Scott Hannah, president and CEO of the non-profit Credit Counselling Society.

“We advocate looking at modifying your expenses, but not drastically changing your expenses.”

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Hannah said it means looking at the expenses one has today along with the debt one is carrying.

“Is it expensive credit card debt? Could we consolidate that debt at a lower rate? A lower monthly payment? We advocate doing that only once you have your monthly spending under control first.”

Calla is also reminding homeowners to get in the habit of reviewing their mortgage every year.

“You don’t have to wait to your renewal date if there’s a better mortgage strategy available to you,” she said. “Just like Canadians do their taxes every year, their mortgage should be part of their financial plan that’s reviewed.”

 

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