Date: July 23, 2024

Part 4: What Are Other Canadians Doing at Renewal? 🤔🇨🇦

Why are they choosing these options? 💭

To continue with this month’s topic, let’s review: Switching lenders to find a lower rate (not necessarily a lower payment).

This one is a little tricky. Here is what you need to ask yourself:
– What is my focus?
– Do I want to pay this mortgage off as fast as possible? 🏃‍♂️💨 OR
– Do I need the lowest payment for the next couple of years? 💸

How you answer this question will determine what you are looking for.

Most people think that the lowest rate is the lowest payment, but that is not the case.

Let me explain:

When you are up for renewal, you will likely be ending your sub-3% fixed rate and taking on a new fixed rate in the 4-5% range. This means over the last five years, you have likely paid off a large amount of interest. If you’ve been paying attention, you’ve also increased your payments slightly to help pay off more principal during low-interest times.

By taking advantage of this low-interest period and making additional payments, you will have decreased the amortization of your mortgage.
So here’s where we begin our review.

Here are the numbers for this exercise:
– $1M home value on the renewal date 🏡
– $400,000 mortgage amount 💵
– 2.5% fixed rate 📉
– 30-year amortization 📅
– $788.90 accelerated bi-weekly payments 💰
– You increased by $100 every payment, making your bi-weekly payment $888.90 💵➡️💵

At renewal time, your mortgage balance will be $329,925.81 and you will have 18 years left to pay your mortgage.

Now, what are your options for renewal?

1. Mortgage Renewal: You can continue on the current mortgage of $329,925.81 and we find you a lender offering the best rates. Let’s assume a 4.89% five-year fixed rate with an 18-year amortization. Your payment will now be $1,145.62 accelerated bi-weekly.

If $1,145.62 bi-weekly is too high for your household budget, you may decide to refinance your home. Not to take more money out of the home (although available to you if needed), but to extend the amortization and give you some breathing room. You decide to extend the amortization and keep your monthly payments low, understanding you can still make extra payments to catch up over the next five years and realign yourself at the next renewal.

2. Mortgage Refinance: In this case, with a refinance, the rate is 5.09% with a 30-year amortization, resulting in a bi-weekly payment of $889.28.

In this example, you would take the second option if payment trumps rate. In option 2, you have a higher rate; however, due to the restructuring, you will maintain your low payment.

Am I suggesting this to you? No, I’m merely offering you a different perspective. A perspective that is not judging and offering you a breather if you are worried about the higher rate in this next term.

I believe that each term of your mortgage should be reviewed individually. Life doesn’t always happen perfectly as planned, and so I want you to know there are options. You do not need to struggle; let’s work out a plan.

More info about this option:
– You can extend your amortization out as far as 30 years, but you don’t need to go to 30.
– You can still make additional payments when life changes and you have the financial room from now until the end of this new term.
– When you come up for renewal at the end of this new term, you may decide that you want to realign yourself back to 10-15 years. You can do that.
– If you are restructuring, I would suggest adding a line of credit for future use if needed.

Basically, I want to leave you with some options and hopefully, a little less worry about payments if that is a concern for you.

Final thought:
This is not for everyone, but we all have moments in our lives where our focus changes, and I want to make sure you know that there are options. Think of this like sailing a ship; there may be high winds, and you may get off course at some point during your journey, but the finish line has not moved. You will get there. ⛵

I’d love to hear your thoughts, and if you have any questions about your upcoming renewal, let’s connect. It’s not too early to start talking about your mortgage, even if your renewal is in a year. We need to start the conversation now. 📞💬

Click here to book a time to connect and review your questions.

Talk soon,

Ana

Mortgages can be complicated; we are here to help you make “cents” of it.

We focus on Mortgage Solutions, Period!

To learn more connect with Ana Cruz 905.870.0513 or email at ana@askanacruz.ca