How to reduce your mortgage payments within a high interest rate environment
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| How to reduce your mortgage payments within a high interest rate environment |
The Bank of Canada is serious. They are determined to raise interest rates to combat inflation at any cost. But how can you lower your mortgage payments if you're about to renew or have a variable-rate mortgage?
This is how you may save money and lower your home payment.
1. Increase the mortgage amortization
Extending the amortization time on your mortgage will help you keep your monthly payments under control even if interest rates climb. Understanding that you will pay more interest in the long run is crucial.
For example, if you took out a mortgage five years ago, you may take out a new mortgage for a 30-year term starting today. This reduces your monthly payment but requires more time to repay the loan.
When you lengthen your amortization time, you may be able to merge additional high-interest debts into your mortgage. This depends on your credit score and current financial circumstances.
2. For the renewal, use a mortgage broker
Using a mortgage broker allows you to apply to many lenders with a single application. This provides you with a wide range of mortgage alternatives as well as access to lenders that offer better terms and cheaper monthly payments.
Monolenders are lenders who can only be accessed via a mortgage broker. If you only use large banks, consider hiring a broker to explore all of your options.
3. Change the mortgage type
While no one has a crystal ball, altering your mortgage type may help keep your payments low.
In Canada, there are two basic kinds of mortgages: fixed and variable rate mortgages, as well as open and closed term mortgages.
Fixed mortgages provide you the security of locking in an interest rate for the duration of your loan (ranging from 1 to 5 years). You'll know precisely how much principle and interest you'll have to pay throughout this time.
When the bank's prime rate fluctuates, variable mortgages cause fluctuations in your payments. Variable-rate mortgages, on average, will result in lower long-term payments. However, when interest rates rise, you may find yourself making higher payments in the near future.
4. Withdraw funds to pay off other loans
If your monthly responsibilities include high-interest credit card bills, card payments, and lines of credit, you may consider withdrawing assets from your home equity to pay off these high-interest loans.
This may minimize your total monthly payments and the amount of interest you pay each month. Consult with your mortgage broker to discover how this might minimize your total monthly obligations.
5. Withdraw monies to deposit in an account to offset payments
Similar to #4 if you do not have any other high-interest loan commitments but anticipate difficulty with rising home payments. You may be able to lower your monthly payments by refinancing and depositing the proceeds in a separate high-interest savings account.
This provides you with a cash reserve in case your mortgage payments exceed your ability to pay. Please consult your mortgage broker to determine if this is feasible.
Bonus idea! Rent out part of your home!
Many homeowners are looking for inventive ways to utilize their houses to generate cash to help offset their mortgage costs. Renting out a garage for storage, parking spot rentals, and short-term Air BnB rentals are all unique methods for homeowners to generate monthly revenue from their homes.