If your mortgage renewal is coming up and you’re facing significantly higher interest rates than when you first secured your loan, you’re not alone. Many Canadian homeowners are encountering a more expensive borrowing environment, which can impact monthly payments and overall financial stability. However, with the right strategy, you can minimize the impact of rising rates and make informed decisions for your financial future.

Why Are Mortgage Rates Higher?

Over the past few years, the Bank of Canada has increased its benchmark interest rates to combat inflation, and the 5-year Government of Canada bond yield has increased. As a result, lenders have raised their fixed rates, and variable mortgage rates have increased as the prime rate increased, leading to higher costs for borrowers. While rates may fluctuate, the trend has been towards more expensive borrowing compared to the historically low rates seen in previous years.

What to Expect When Renewing Your Mortgage

When your mortgage term ends, your lender will typically offer a renewal agreement. However, it’s important not to accept the first offer without evaluating your options. In a higher-rate environment, careful planning and negotiation are essential to securing the best terms.

Here are a few key factors to consider:

1. Assess Your Current Financial Situation

Before committing to a new mortgage term, take stock of your finances. Consider:

• How much your monthly payments will increase at a higher rate
• Whether you have any additional debt that needs to be managed
• Your long-term financial goals and budget

2. Shop Around for the Best Rate

Many homeowners simply renew with their existing lender, but this can be costly. It’s wise to explore offers from different lenders, including banks, credit unions, and mortgage brokers. A mortgage broker can help you access competitive rates and special promotions that may not be widely advertised.

3. Consider a Shorter Term

If you believe interest rates might decrease in the next few years, you may want to opt for a shorter-term mortgage (e.g., a 1- to 3-year term) instead of locking into a 5-year fixed rate. This gives you the flexibility to renew at a potentially lower rate in the near future.

4. Explore Fixed vs. Variable Rates

• Fixed-rate mortgages provide stability, ensuring your payments remain consistent throughout your term. This is a good choice if you want certainty in your budgeting.
• Variable-rate mortgages can be riskier but may offer lower initial rates. Historically, variable rates have been advantageous over the long term, but this depends on market conditions.

5. Increase Your Payments (If Possible)

If you can afford it, increasing your mortgage payments or making lump-sum payments can help reduce your principal faster, ultimately saving you interest costs over time.

6. Consider Refinancing or Extending Your Amortization

If higher rates are causing financial strain, refinancing might be an option. This could involve extending your amortization period to lower your monthly payments or consolidating high-interest debt into your mortgage. However, this means paying more interest in the long run, so weigh the pros and cons carefully.

Final Thoughts

Renewing your mortgage in a higher-rate environment can be challenging, but with careful planning and expert guidance, you can navigate this transition effectively. Avoid rushing into a renewal without exploring your options, negotiating with lenders, and considering alternative strategies that align with your financial goals.

If you’re looking for tailored advice on your mortgage renewal, contact me so I can assist you in securing the best terms and reducing the impact of rising rates.

With trade wars and tariffs dominating the headlines recently, many are wondering what effect this could have on the housing market. Lower interest rates offer some relief, but we're now facing the potential of tariffs driving up costs. So, what does this mean for mortgage rates, home prices, and affordability? Here's an overview of how tariffs could impact the housing market.

In late January, the U.S. announced that it would impose tariffs on certain Canadian goods, which prompted retaliatory measures from our government. Then, in an eleventh-hour deal, both countries agreed on a 30-day suspension. The U.S. recently announced that it would impose a 25% tariff on Canadian steel and aluminum imports. With the threat of more tariffs still looming, the situation remains unclear.

If tariffs do go into effect, this could lead to higher costs in construction, home renovations, and mortgage rates. Here's what's already unfolding:

• The Canadian dollar has seen drops, making imported goods, including construction materials, more expensive.
• Stock market fluctuations indicate general unease about economic stability, affecting investor confidence and borrowing conditions.

How Could Tariffs Impact the Housing Market?

Many materials used in Canadian homebuilding are imported from the U.S. If tariffs increase costs, this could lead to:

1. Higher Construction and Renovation Costs: Many materials used in Canadian homebuilding are imported from the U.S. If tariffs increase costs, this could lead to: Fewer new homes being built, further tightening supply. Rising home prices due to higher material costs. More expensive home renovations for current homeowners.
2. Mortgage Affordability and Interest Rate Uncertainty: On January 29, the Bank of Canada announced its sixth consecutive rate cut to support the economy. Further rate cuts in 2025 were widely expected but some analysts suggest that tariffs could lead to inflation, which might pressure the Bank of Canada to halt or reverse rate cuts. Others argue that economic slowdowns resulting from trade disruptions could lead to further rate reductions.
3. Market Volatility and Buyer Behaviour: Uncertainty surrounding trade policies could lead to mixed reactions in the housing market: Some buyers may rush to secure lower mortgage rates before potential increases. Others may pause their homebuying plans, waiting for greater economic clarity. Regional markets may be affected differently, with some areas maintaining demand while others slow due to affordability concerns.

What Does This Mean for You?

• If you have a variable-rate mortgage: The recent rate cut means lower payments for now. However, if inflation rises due to trade disruptions, further rate cuts may not materialize, and rates may even increase.
• If you have a fixed-rate mortgage: Refinancing might still be a good option while bond yields remain low, but market uncertainty could impact lender rates.
• If you are planning to buy a home: Rising construction costs could mean fewer new homes and higher prices. Acting sooner rather than later could help secure a better mortgage rate and affordability.

How to Stay Ahead

The housing market is evolving rapidly and having the right mortgage strategy is more important than ever. Whether you're looking to buy, refinance, or explore your options, I can help you navigate these changes with confidence.

Let's discuss your mortgage strategy before conditions shift! Call or email me today to plan your next steps.

I get questions about downpayment all the time! So here is the lowdown on how much you need and how you might get it.

How much do you need?

Many Canadian homebuyers purchase a property with the absolute minimum downpayment. The thing is, the minimum can vary, so you want to be sure you know how it’s calculated.

Will you live in the home? If the house will be owner-occupied, then you need 5% down for the first $500,000 of the purchase price and 10% for any amount over $500,000 up to $1,499,999.  If the purchase price is $1,500,000 or more, the minimum down is 20%.

Hoping to skip the cost of mortgage default insurance? Then you’ll need at least 20% down. Any downpayment less than 20% of the purchase price requires this insurance, which will be added to your mortgage principal.

Buying a rental or recreational property? If it’s not going to be your own principal residence, then you’ll need 20% down. Genworth and CMHC have a vacation/second home program that allows you to put 5% down but mortgage default insurance will be required. Rental properties require 20% down.

Are you new to Canada? If you’re a permanent resident, then you’ll need the same downpayment as a Canadian citizen: 5% for the first $500,000 and 10% after that. If you are a non-permanent resident, then you’ll need 10% down.  And if you’re not a resident of Canada, then you’ll need at least 35% down from your own resources (not borrowed).

Smart ways to come up with a downpayment

If you’re looking to buy a second home, refinancing your existing home is often the best way to get a downpayment. The best starting point is a review of your situation.

If you’re saving for your first home, here are some ways to come up with the cash:

1. A financial gift. If you’re lucky enough to receive financial support from a parent or other blood relative, you’ll need to get a signed form stating that the funds are a gift and that you are not required to pay them back at any time.
2. Your RRSP: You can withdraw up to $35,000 tax-free from your RRSP or $70,000 per couple.  The recent federal budget increased this from $25,000 and also announced that in 2020, this program will be available to divorced individuals.  You will be required to pay the funds back over 15 years.
3. FHSA: An FHSA combines some of the features of an RRSP and TFSA. Contributions will generally be tax-deductible, and when a qualifying withdrawal is made, the amount withdrawn is not-taxable.
4. TFSA/Investments: If you withdraw from your TFSA to boost your downpayment, you’re allowed to re-contribute, so you never lose your TFSA room.  If you haven’t set up a TFSA, then do it today and set it up so money goes in every month.
5. Early inheritance: Many parents and grandparents would rather help their children purchase a home while they’re alive than have them wait for an inheritance.
6. Sell assets: For instance, a vehicle or jewelry. You need to show 3 months of bank statements to support your downpayment and explain any large deposits.
7. Money from outside of Canada: If you’re bringing funds from outside of Canada, you’ll want to have those funds in Canada for at least 30 days before closing, and you’ll need to provide 3 months of financial history from the original account they came from.

Often, homebuyers are actually closer than they think to buying that first or next property. Get in touch any time. Early advice can save time, money and stress!