Surviving Rising Interest Rates – Locking Your Rate May Be the Best Time to Refinance
So far in 2018 Canadian homeowners have experienced several major changes that could affect finances — new mortgage rules and rising interest rates
First, let’s look at the new mortgage rules. On January 1, 2018, new Canadian mortgage rules came into effect. These regulations require lenders to stress test mortgages based on higher rates to make sure that house hunters and those up for mortgage renewal can afford their house.
Second, the interest rates. Interest rates have increased three times since July of 2017. They are currently sitting at 1.25%, the highest they have been in nine years. For homeowners carrying a lot of debt, rising interest rates could mean financial turmoil.
The Bank of Canada has indicated interest rates are going to keep increasing in 2018 and beyond. And the new mortgage rules seem to back that up — if regulators are stress testing mortgages for increased rates, it stands to reason that rates will keep increasing.
So, what does that mean for homeowners?
- If you don’t have a locked-in mortgage rate or are close to your mortgage coming up for renewal, you may want to think about locking in. A fixed mortgage has standard monthly payments that don’t change with rising interest rates, unlike a variable-rate mortgage.
- If you are already locked in, anticipate that when you renew, unless there is a major downturn in the economy, your rates could be higher. The sooner you start planning for this, the better off you will be.
- Know that your equity position may change. Real estate is driven by supply and demand. New mortgage regulations and higher interest rates mean that buyers will be able to afford less, which may lead to reduced valuations and less equity.
- If you are carrying debt, that should be a further motivator to act. If interest rates increase further, and you’re carrying a lot of high-interest debt, that’s going to mean higher payments for you. Can you afford that?
One common way of dealing with excess debt is mortgage refinancing. Now could be the ideal time to look at mortgage refinancing before interest rates increase again.
Ask yourself, what would a new first mortgage look like if you folded in all of your debt?
In some situations, you may not be able to refinance your first mortgage, or it might not make financial sense to do so. If that’s the case, you may want to consider a second mortgage. If debt is excessive, a second mortgage could mean far less interest than you are likely paying on credit cards.
If you’re thinking about mortgage refinancing or a second mortgage as a possible debt solution, it’s best to speak with an experienced debt consultant first — one who will assess you and present you with all of the financial options available to you, the pros and cons, and guide you to the best financial plan.
For more information about mortgage refinancing or second mortgages, please contact DebtCare Canada today by calling 1-800-890-0888.