Why Is My Mortgage So High?

These days, it seems that the cost of everything is going up, with little relief in sight. A trip to the grocery store sets us all back more than ever, and let’s not even talk about the pain at the gas pump.

Interest rates are also much higher than they were a few years ago when many of us signed on for a mortgage. Now that those terms are expiring, the renewal rates are enough to make your eyes pop. What happened, and is there any way to reduce those monthly mortgage payments? In this post, we’ll answer your questions and explore all things mortgage-related.

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Which Mortgage Is Best for Me?

Whether you’re in the process of buying your first home or your existing term is up for renewal, it doesn’t hurt to start with a quick review of the different types of mortgages.

What is a Fixed Rate Mortgage

A fixed-rate mortgage is just as it sounds, the rate is locked in for the duration of your term. You won’t benefit by rate decreases, but you can take comfort in knowing your payments won’t increase after the next Bank of Canada announcement.

(Note: Fixed-rate mortgages are actually tied to government bond yields, not Bank of Canada rates. That said, they do coincide more often than not.) If you often find yourself worrying about “how much mortgage can I afford,” a fixed-rate might be the best choice.

What is a Variable Rate Mortgage

Unsurprisingly, a variable rate mortgage means that your interest rate can vary with Bank of Canada rate changes. If you choose this route, you’ll celebrate every time the Bank of Canada announces a decrease. When rates rise, you’ll feel the pinch.

Historically, variable-rate mortgages have been lower, although all bets are off in the current market and economy. If interest rates are high and all (or most) experts predict they will come down, it can be smart to go with a variable mortgage.

On the other hand, you might want to lock in your term if rates are uncharacteristically low. Every situation is nuanced, which is why the guidance of a mortgage expert is invaluable.

With their help, you can weigh all of the pros and cons, such as the penalties for early repayment or porting your loan if you sell your home before your term ends. After examining the possibilities from all angles, you’ll be able to make the safest and most affordable decision possible at the time.

Before buying or selling a house in Peterborough, it helps to understand the market overall. The posts below will help you navigate today’s changing landscape:

What Is a High-Ratio Mortgage?

Low-ratio and high-ratio mortgages are other terms you’ll encounter during the home-buying process. What do they mean? Think of your mortgage from the lender’s perspective. They’re putting up a considerable amount of money to finance your purchase, and it can be a risky proposition.

In a low-ratio mortgage, the buyer places a down payment of at least 20%. This makes the loan much less risky for the lender. Ideally, the more you can pay out of your own funds, the better, because it also means reduced mortgage payments. When buying a property valued at $1.5 million or more, there is no longer a choice. You must have at least 20% to qualify for a mortgage.

High-ratio mortgages are when the buyer pays less than 20% as a down payment. If a house is priced at $500,000 (or less), you technically only need 5%. That means the lender is covering the remaining 95%. To help minimize their risk, you’ll now need CMHC mortgage insurance, which gets added to your closing costs.

Refinancing for a More Affordable Mortgage

Rising interest rates can add a considerable amount when it’s time to renew your mortgage. If you’re looking at the offer from your current lender, and inside, you’re panicking and thinking, “my mortgage is way too high; what can I do?” the first step is simple:

Start Shopping Around

Once your term expires, you are not bound to any particular lender or bank. (For example, your current lender may offer you an incentive to stay, or they might take your business for granted. The only way to be sure is to explore all possible options.)

An experienced mortgage broker can give you access to the lowest rates and best terms from multiple lenders all at once. While no one is getting the unprecedented rate that we did in 2021, you might be surprised at how much you can save just by shopping around.

Homeowners are downsizing at younger ages than ever before. For some, it’s about selling their existing home in favour of more affordable mortgage payments; for others, it’s all about achieving a carefree lifestyle. Explore your options in the posts below:

My Mortgage Is Too High: What Can I Do?

If life has changed and your mortgage is not up for renewal, you may have some lifestyle decisions to make. Struggling with monthly payments can be distressing, but remember, the bank does not actually want to take your house, either through a Power of Sale or Foreclosure. Those are last resorts.

Often, your lender will work with you to create a more flexible repayment plan if you become unemployed, ill, or some other unforeseen circumstance comes up.

The bank may agree to extend your amortization period to lower your monthly payment, although you will pay more interest over time.
Alternatively, they might pause payments during a crisis or allow a one-time skipped payment. (Once again, interest will continue to accrue.)

If you can come to a formal agreement, your account won’t be considered delinquent, and your credit score won’t be impacted. The key is to reach out early rather than waiting for your lender to respond to a missed or late payment.

By being proactive, you can often find a creative solution that works for everyone involved. If you have questions, a local real estate agent can help guide you.

Do you have questions about buying or selling a home in today’s complex market? Our Peterborough real estate agents are here to support you through whatever challenge you are facing. Reach out to team@jeffandkatie.ca or call 705-243-9797 to start the conversation today.