Many Canadian Homeowners Rethink Mortgage Decisions Amidst Rate Increases

While homeownership is widely regarded as a favorable long-term investment by Canadians, many face unforeseen challenges and expenses during their journey.

The rapid surge in interest rates over a year, combined with inflationary pressures, has led numerous homeowners to second-guess their mortgage decisions. A study by The Real Estate and Mortgage Institute of Canada (REMIC) indicates that 30% of those surveyed regret their current mortgage. Of this group, 22% find their mortgage unaffordable due to rising rates, while 12% believe they’re trapped in an unfavorable rate.

Interestingly, 30% said they wouldn’t have opted for a smaller property even if they had anticipated the mortgage rate hike.

When it comes to understanding the rates, the picture isn’t bright. A surprising 41% are unaware of the prevailing Canadian interest rate, and 17% are unsure. Furthermore, over two-thirds don’t know their mortgage repayments at a 5% interest rate, which is the current figure. Astonishingly, 58% of Canadians can’t quote their exact monthly mortgage payments without referring to their records.

Trust in Banks: A Double-edged Sword?

This widespread unfamiliarity with rates highlights the deep trust Canadians place in their banks. Almost 60% of those polled had their mortgages set up by their primary bank. 43% are of the belief that banks invariably offer the best rates, with 58% confident of receiving the best rates due to their loyalty.

However, Joe White, REMIC’s president and CEO, warns against this unwavering trust. He notes, “Blindly trusting banks could cost homeowners dearly. Many Canadians accept bank-provided rates without comparison, dedicating more time to comparing credit cards than mortgages.” He emphasizes that Canadians should not assume that banks prioritize their quality of life when determining mortgage payments.

White further states that proficient brokers should advocate a harmonious blend of homeownership and maintaining a satisfactory standard of living.

Read more: How Canadian Homeowners Can Safeguard Their Finances

A Lifelong Mortgage Commitment

The study also unveiled that nearly half of the respondents foresee paying their mortgage until nearing 60 years of age. A smaller portion, 8%, believe they’ll be paying until age 70. 5% expect to clear their mortgage by age 75 or later, while another 8% anticipate doing so beyond the age of 80.

White wraps up by underscoring the necessity for Canadians to be better informed about mortgages. “Our data vividly shows the importance of understanding mortgages and their long-term financial implications. A licensed mortgage broker could offer invaluable insights, and this underscores the benefits of utilizing broker services for mortgage arrangements,” he concluded.

Tips to Help Homeowners Navigate the Mortgage Landscape

1. Research and Compare: Don’t just accept the first mortgage rate you’re offered. Shop around and compare rates from different lenders. Online comparison tools can be helpful.
2. Fixed vs. Variable Rate: Understand the pros and cons of both. Fixed rates offer stability, while variable rates might be lower but can change over time.
3. Budget Wisely: Always have a clear budget. Factor in additional costs like property taxes, insurance, and maintenance when determining how much you can afford.
4. Emergency Fund: Set aside funds for unexpected home repairs or rate increases. This provides a cushion in times of financial strain.
5. Regularly Review: Regularly review your mortgage terms, especially if your financial situation changes. Refinancing might be a good option if rates have dropped or if your credit has improved.
6. Overpayments: If your mortgage agreement allows, consider making overpayments. This can significantly reduce the interest you’ll pay over time and shorten the mortgage term.
7. Stay Educated: Keep an eye on the housing market, interest rates, and economic forecasts. The more informed you are, the better decisions you can make.
8. Seek Professional Advice: Consult with a mortgage broker or financial advisor. They can offer tailored advice and might have access to deals or rates that aren’t widely advertised.
9. Understand Mortgage Features: Familiarize yourself with terms like “portability” (transferring your mortgage to a new property) or “prepayment privileges” (paying off a portion of your mortgage early without penalties).
10. Beware of Penalties: If considering breaking your mortgage early, be aware of potential penalties. Understand the costs before making decisions.
11. Build Good Credit: A strong credit score can secure you a lower interest rate. Pay bills on time, reduce outstanding debts, and check your credit report regularly for discrepancies.
12. Avoid Long-Term Lock-ins: While long-term fixed rates might seem attractive due to stability, they often come with higher interest rates. They might also have significant penalties if you decide to switch or pay off early.
13. Be Proactive: If you’re struggling with payments, approach your lender to discuss options. They might offer solutions like temporary payment reductions or mortgage holidays.
14. Limit Equity Withdrawal: Refrain from continually withdrawing equity from your home. It might be tempting, especially with rising property values, but it can extend your mortgage term and increase total interest paid.
15. Stay Insured: Protect your investment with the right insurance. Home insurance covers damages, while mortgage protection insurance can help with payments if you face unexpected financial setbacks.

Armed with these tips and a proactive approach, homeowners can make informed mortgage decisions, ensuring long-term financial stability and peace of mind.