As a homeowner, you’ve no doubt earmarked a set amount for your mortgage payment every month.
You may have a handle on it today, but what would you do if your income went down- or if your mortgage payment increased? How much mortgage can you handle, no matter what the circumstances?
What many people forget is that if you opted for a variable mortgage, because the rates were lower, the amount you pay for your mortgage can change. The amount you pay is based on principal and interest. If interest rates go up (which they eventually will), how much would that increase your payment? And more importantly, how would that increase in payment figure into your overall monthly budget? Is there wiggle room, or are you going to be tight- or worse- unable to manage that extra cost? How much mortgage can you handle?
(Indebted) homeowners unite
If things are looking a little tight, you’re not alone. A recent survey from BMO shows that one in six Canadians wouldn’t be able to manage an extra $500 in a mortgage payment.
Don’t let the low rates lull you into a false sense of security. Here are some things to consider to keep your mortgage payments under control.
Rates will increase
While this may sound a bit Chicken Little, rates are going to go up. Yes, we’ve been saying this for years, and yes- they’ve actually gone down in the interim.
Rest assured though, rates will absolutely go up. It’s just a question of when- and by how much.
When is your mortgage up for renewal? While you may have a fixed payment right now, when it comes up for renewal, it will be subject to change. If rates have increased, you’ll be paying more, plain and simple. If you’ve got a hefty mortgage that could work out to a bigger payment.
You may want to look at your options for early renewal, and then lock in for the longer term. You’ll pay a penalty, but the math may support it. You might be able to generate more savings over time in interest. Talk to your lender to see if it’s worth it.
If you’re content to leave your mortgage payment as is, create more cash flow in your budget, so that you can absorb an increase. If you are already doing more with less, you won’t be backed into a financial corner if you’ve got to pay more for your mortgage.
Are you wondering how you might be able to improve your financial situation by larger payments on your mortgage? Is your budget standing in your way? Maybe it’s time to review your cash flow so that you can get to work on reducing your debt. Call one of our trained credit counsellors 1-888-294-3130 or check out our free online debt analysis tool to get started.