The prospect of higher mortgage rates and stiffer rules that went into effect last week on qualifying for house mortgages have left Canadians scrambling for answers to their home financing questions before rates rise.
Many Canadians already faced with growing consumer debt are worried about how they'll continue to make payments once mortgage rates rise. And many others, who want to get into the market ahead of rate hikes wonder how or if they'll be able to do so. And as the reality of higher rates creeps closer, mortgage holders have many questions.
The answers are different for each homeowner or prospective homebuyer; but there are some general rules that wise mortgage holders follow in order to cushion themselves against rate hikes.
Those with mortgages coming up for renewal in the next four months and buyers looking to get into the market before rates rise should get pre-approved at current rates, giving them 120 days to lock in. Refinancing is also an option for those worried about existing mortgages, but owners would have to pay a penalty.
If you think that rates are going to go up three points in the next two years and you have a year or two left on your mortgage, to pay a small penalty for the peace of mind for the next five years might be worth it.
If you are going to be worried about what happens with rates, don’t choose a variable rate. Nervous buyers should consider a fixed-rate mortgage for a longer period of time and take comfort in knowing the payment will not change for the term of the mortgage. Taking a five year rate at 4.5% is still an incredible rate.
Instead of buying a dream home, consumers may be buying a starter home like most people used to have to do. Homebuyers worried about their ability to make payments may have to compromise. You might have to settle for a little less house initially in order to start building up equity, or you might want to consider having a cushion in your payments.
