Once you have your mortgage secured and your payments set up, it may be tempting to ignore it until you get your renewal letter from your lender.
But I’m going to outline some reasons why there is no better time than the present to undergo a mortgage check-up to ensure your current mortgage is still the right fit for you.
Conducting a review of your mortgage provides an opportunity to not only check in on the status of your payments and principal reduction, but to ensure there are no surprises, particularly in times of volatile rate changes as we have seen over the past year.
The rate environment has changed
Whether you got a mortgage a year ago or four years ago, the interest rate environment has changed drastically.
As you have probably seen in the news headlines, the Bank of Canada has hiked its benchmark rate by 425 percentage points over the past 12 months, which means variable rates today are now significantly higher than they were a year ago.
If you’ve got a variable-rate mortgage, a mortgage checkup is vital. Whether you have an adjustable-rate mortgage, in which monthly payments fluctuate based on changes in the prime rate, or a fixed-payment variable mortgage, in which the portion of the payment going towards interest and principal fluctuates, you should be familiar with how your payments have evolved in the face of higher rates.
Some borrowers with static payments may be surprised to find a majority of their monthly mortgage payments are now going towards interest cost, or that their payment does not cover the total monthly interest. If this applies to you, you can proactively increase your payments to ensure continued mortgage balance reduction.
Are you leaving money on the table?
Since the rate environment has changed so much, there could be better mortgage options available to you.
For fixed-rate mortgage holders who secured much lower rates over the past several years, chances are you’ll want to stick with your rate until renewal. But for variable-rate borrowers who have seen their interest costs rise, refinancing the mortgage to reduce monthly payments may be an option. However, you’ll need to be aware of any potential prepayment penalties that might be involved with breaking your mortgage early.
Get ahead of potential challenges
If you’ve experienced a significant change in your financial situation since you secured your mortgage–just as a job loss, a change in income or marital status–don’t be afraid to reach out and we can explore what options may be available from your lender. Most lenders offer payment deferral options that can help see borrowers through temporary hard times. But these solutions are often easier to implement earlier rather than later.
Everyone’s financial and personal situations are different and require custom solutions. If you need assistance, feel free to reach out so we can discuss the options available to you.