Paying more for your mortgage? 

I know it's not easy after enjoying such low interest rates for such a long time, but there may be some ways to manage it.

If you're in an Adjustable Rate Mortgage (also sometimes called a Variable Rate Mortgage with a non-static payment), you have likely noticed that your payments have started to rise with the Bank of Canada rate increases/increases to Prime Rate.

First, before you panic about rates rising and whether you will be able to make your payments, try to remember that, for the past 2-4 years, all mortgage borrowers have had to qualify for their mortgages based on the mandatory Government "stress test". This means that, despite some of the record low interest rates that we have actually been paying over the past few years, borrowers have been forced to show that they will be able to make the payments if rates were to rise as high as 4.89-5.25%, using approximately 40-44% of their income to pay for mortgage and non-mortgage debt. If you got a mortgage in the last 4 years, then you passed this test. Granted, I know this calculation does not include a number of factors such as daycare costs (for some of you), gas prices, and the overall increase to the cost of living lately, but hopefully it's a tiny bit comforting to know that *on paper* you should hypothetically be able to make the payments based on 40% of your pretax income, leaving 60% of your income for those other expenses and taxes.

If that's not comforting (I tried!), here are a few ideas to help you minimize/manage your mortgage payments:
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• Switch from Accelerated Biweekly or Accelerated Weekly payments to Monthly payments.
  If you have chosen Accelerated Biweekly payments or Accelerated Weekly payments, this forces you to make extra payments every month to reduce interest costs. This is great in times when you are able to make extra payments, but not ideal in times when cash flow is tight.
  If you are looking to lower your monthly mortgage payments, I would recommend changing back to monthly payments as soon as possible, as this will immediately free up some of your monthly cash flow.
  If you're confused about how this works, here is a quick summary:
  There are 26 Biweekly payments in a year (ie. payments every two weeks). When you choose Accelerated Biweekly payments, lenders will take your monthly payment and divide it in half to arrive at your Accelerated Biweekly payment amount. This is different than "Regular Biweekly" payments, which would take your annual mortgage payments and divide it by 26.
  For example, let's say that your monthly mortgage payments when you first started your mortgage were supposed to be $2,000 per month. This means that your total payments per year would be $24,000.
  With regular Biweekly payments, the payments would be calculated like this: $24,000 divided by 26 = $923.08 payments every two weeks
  With Accelerated Biweekly, you would take the monthly payment and divide it in half: $2,000/2 = $1,000 payments every two weeks
  Thus, with Accelerated Biweekly payments, you end up paying $1,000 x 26, which is equal to $26,000...or $2,166.67 per month.
  In this scenario, by switching back to monthly payments, you can lower your payments by $166.67 per month.
  Once times are easier and your cash flow has increased, you can switch back to Accelerated Biweekly payments and pay down your mortgage quicker again.
  Note: Please keep in mind that some lenders call their Accelerated Biweekly payments just "Biweekly", so you may be on an accelerated payment plan without even knowing it. If you're unsure which type of Biweekly payment plan you are on, it's best to check with your Lender or your Broker.
  
  
• Check to see if you have a Home Equity Line of Credit (HELOC) available with your mortgage.
  If money is tight right now, you could always use that HELOC to help with your mortgage payments. In essence, this is using your own equity to help balance out the extra interest. Remember that your home is still appreciating/gaining value, so hopefully this makes you feel better about using your equity. Just remember that anything you withdraw from the HELOC will require interest-only payments, which are usually charged at Prime + 0.50% (currently, this would be 4.2%). However, you can always withdraw funds from the HELOC into your bank account, then transfer back into the HELOC, as a payment. You could do this as a temporary solution until interest rates start to come back down again.
  If you do not have a Home Equity Line of Credit, check with your lender if they offer it. If they do not offer HELOCs, you can always put the extra payments onto an unsecured Line of Credit (LOC) for the time being. Again, some people may not like this option as it feels like you are gaining debt; however, please keep in mind that this is a temporary solution and that your home value is likely rising at a similar pace. Once rates begin to level out, we can look at refinancing your mortgage to consolidate your mortgage balance and HELOC/LOC balance into one payment. For those of you with variable or adjustable rate mortgages, this will be easier for us to do, as it will be just 3 months of interest as your penalty. If you are in a fixed rate mortgage, this may be a bit harder to do, if your penalty to break your mortgage is high at the time.
  
  
• Consider refinancing your mortgage to lower monthly payments.
  There may be an option to refinance your mortgage to increase your amortization, which may lower your monthly payments. When you refinance and increase your amortization, this will trigger a prepayment penalty and may also require you to pay new legal fees, so these costs will have to be weighed before you can determine if this option makes sense. There may be an option to include the penalty and legal fees into your new mortgage amount. Please keep in mind that, based on today's Variable Rate discounts (the percentage that is subtracted from Prime Rate) vs the Variable Rate discounts in the past, the new rate may be higher than your current mortgage rate. However, if cash flow is truly the most important factor for you, this may be an option you may wish to discuss with your Mortgage Broker.
  
  
• Consider switching your type of mortgage.
  If you are in an Adjustable Rate Mortgage, are worried about Prime Rate continuing to rise, but do not wish to lock into a Fixed Rate mortgage, you may wish to consider refinancing your mortgage and moving to a lender with a static Variable Rate payment. With a Variable Rate static-payment mortgage, your payment will not move even if Prime Rate increases, *unless* Prime Rate rises so high that you hit your "trigger point" (where your payment is no longer enough to cover the interest payments).  Please keep in mind that, based on today's Variable Rate discounts vs the Variable Rate discounts in the past, the new rate may be a higher interest rate than your current interest rate. If paying less interest is your goal, then you may want to keep your great Adjustable Rate and pay a higher payment for now. However, if cash flow is truly the most important factor for you, switching to a static payment may be an option you may wish to discuss with your Mortgage Broker.
  
  

If you are truly struggling with payments, the best option would be to reach out to your Mortgage Broker or Lender as soon as possible to discuss your options. Each individual situation is different, and options will range based on your specific financial picture.

Just one more note: if you're in a Variable Rate Mortgage (with a static payment), your payment may not have risen automatically. However, if paying off your mortgage is your goal, you may want to think about increasing your payment (if you are able to), since more of your mortgage payment is now going towards interest instead of paying your principal balance.

Questions? Please feel free to reach out! I am happy to help.

Hang in there! We won't be in this space, or in this place, forever.

Many of you have been receiving your property tax bills over the past few days, and most property taxes will be due on July 4th - 5th this year.

IMPORTANT:
If you are eligible, please do not forget to apply for your Home Owner Grant! This must be done EVERY YEAR, and it is your responsibility to claim the grant. Banks DO NOT do this on your behalf.

If you pay your taxes through your Lender/with your mortgage, please make sure to forward a copy of the tax bill to your Lender/your servicing branch if it does not indicate "COPY SENT TO MORTGAGE LENDER" in the upper header section of the tax notice. This will assist in preventing any late tax payment penalties.

If this is your FIRST YEAR with your Lender, it would be a good idea to contact them at your earliest convenience to check on the payment status of your property taxes this year, and to let them know that you have applied for your Home Owner Grant.
Depending on when your new mortgage closed, you may be expected to make this year's property tax payment directly to your municipality, even if your lender collects regular property tax payments from you. For example, if your new mortgage closed after March 1st, 2022, some Lenders may not have had enough time to get you onto the full payment cycle for this year, and the payments that they have been collecting are actually for next year (2023).

The easiest and fastest way to pay your property taxes is with online banking or setting up a pre-authorized payment plan with City Hall directly. Please check your property tax bill or visit your municipality's website for more information.
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Please do not hesitate to ask if you have any questions.
Have a great day!

As widely expected and projected by many industry analysts for the past month and a half, the Bank of Canada raised their key interest rate by another 0.50% this morning. To many who have been following the news, this comes as no shock; however, even those who were expecting it are still feeling somewhat perturbed by this rate hike. After all, the rising cost of, well...everything is now hitting our mortgages and household debt.
Before you panic, it's important at this time to keep a level head and to put everything into perspective. How WILL this ACTUALLY affect your mortgage?

~ For those of you with Fixed Rate mortgages, today's Bank of Canada rate increase will not affect you at all. Your rate and payment will stay the same.

~ For those of you with Variable Rate mortgages with static payments, your payments should remain the same. However, the amount of your mortgage payment that goes towards interest will increase, while the amount of your payment that goes towards paying down your principal amount of your mortgage balance will decrease. If you would like to stick with your original amortization schedule (ie. the original plan on how long it will take you to pay off your mortgage), I would recommend that you contact your Lender to ask them to increase your payment accordingly. Please see below.

~ For those of you with Adjustable Rate mortgages (sometimes called Variable Rate mortgages with Non-Static payments), your payment will change based on the 0.50% increase to Prime Rate. The change in your payment will likely come next month on your next month's payment date, or may come sooner for some Lenders, depending on your payment frequency. Your Lender will likely send you a notice to let you know what your payment change will look like.
- To put it simply, your mortgage payment will likely rise approximately $26 for every $100,000 of your mortgage balance (based on a 25 year amortization). On a $500,000 mortgage balance, that will be an increase of around $130 per month.
- If you've been applying my suggest strategy for the last few months/years and have been putting aside the monthly savings that you would have paid if you had chosen a fixed rate, you likely will have a sizable slush fund to pay for this increase.
- If this amount sounds like a lot to swallow, it is important to REMEMBER how much money you have been saving over the past few months and years! The strategy with variable/adjustable rate mortgages is a LONG GAME. Interest rates may rise and fall over the course of your mortgage term and, historically, the variable rate mortgage holders have always won the Rate Game.

It's important to note that, despite the increase to Prime Rate today, Variable/Adjustable Rate mortgage rates are still much lower than those of Fixed Rates mortgages today. They also offer much more flexibility (ie. smaller penalties) than Fixed Rate mortgages. As such, I do not believe that now is the time to panic and it is certainly not the time to lock into a 5-year Fixed Rate mortgage product at 4.5-5%.
​If, as many people believe, we are heading into a recession and rates begin to drop again, those of you with Variable/Adjustable Rate mortgages will have the opportunity to break your mortgages and secure a lower rate.

Remember, we knew that the ultra-low rate environment would not last forever.
- We also know that an ultra-high rate environment will not last forever, either.

If you're unsure about what type of mortgage you have and how today's rate increase will affect you, reach out to your Mortgage Broker or Lender!
Any further questions? I'm happy to help! Please do not hesitate to reach out.

---> And, yes....I still have two variable/adjustable rate mortgages of my own and, NO, I will not be locking into a fixed rate at this time! Keep calm, and ride the wave with me...

In her keynote speech last week, Deputy Governor of the Bank of Canada, Sharon Kozicki, asserted that the Bank of Canada is "prepared to act forcefully" to bring inflation back down to 2% by using their monetary policy tools. However, she also confirmed that the Bank is cautious about tightening their monetary policy too quickly which could further promote inequality and hardships for some households.
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"While we will watch developments with respect to households closely as we proceed, it's important to be clear: Returning inflation to the 2% target is our primary focus and our unwavering commitment. We have taken action and will continue to do so to return inflation to target, and we're prepared to act forcefully" -  Deputy Governor - Bank of Canada, Sharon Kozicki, March 25, 2022: https://youtu.be/IlKh0yAJMOg

In light of Ms. Kozicki's speech, many economists are now predicting that the Bank of Canada will announce a 0.50% increase to their key policy rate in their April 13th announcement.

So...is now a good time to panic? Should you lock into a Fixed Rate Mortgage?

Fear of the unknown is a large driver in the mortgage market, and there is a reason why 3/4 of mortgages in Canada are Fixed Rate Mortgages. People find comfort in predictability...and so do the Banks.

But... Isn't it important to consider that the 1/4 of Canadians with Variable Rate Mortgages have been the big winners and paid less overall interest for over a decade?

Inevitably, rates will rise. The "emergency" low rates of the pandemic cannot last forever.

We cannot predict the future. However, what we CAN do is explore the past and learn FOR our future.

Let's look at some quick and easy numbers:

Let's say you have a $500,000 balance with a 25 year amortization and a 5-year closed Variable Rate Mortgage at Prime Rate minus 0.80% right now. 
That 0.80% is called your "discount", and you will have your discount for your entire 5-year Variable Rate term. 
With Prime Rate currently at 2.70%, this means that your current interest rate is 1.90% (2.70% - 0.80% = 1.90%), and your monthly payment is $2,095.01.
(In fact, your rate may even be lower...some of you may have been lucky enough to secure Variable Rate discounts over 1.0% recently!)
In contrast, current 5-year Fixed Rate Mortgages with many of the Big Banks have now risen to approximately 3.89% to 4.14%! With a $500,000 balance and a rate of 3.89%, these fixed rate payments would be $2,600.37.
Therefore, there is now an interest rate difference of nearly 2% between Fixed and Variable Rate Mortgages, and this amounts to a savings of $505.36 per month for Variable Rate Mortgage holders.

But...What if Prime Rate rises?

If the Bank of Canada acts "forcefully", as they say, and raises their key interest rate by a half percent in April (raising Prime Rate to 3.20%), this will drive your Variable Rate interest rate to 2.40%.
$500,000 at 2.40% = $2,217.99/month
$500,000 at 3.89% = $2,600.37/month
With a Variable Rate Mortgage, you would still be saving $382.38 per month.

Let's say that the Bank of Canada acts even more aggressively and raises rates to "pre-pandemic" levels. After all, Prime Rate in October 2018 went as high as 3.95%, and stayed that way until April 2020, when it dropped to 3.45% at the beginning of the pandemic.
In this scenario, even if the Bank of Canada raised their key interest rate and Prime Rate rose to 3.95%, your rate would still only be 3.15% (3.95% - 0.80%). 
$500,000 at 3.15% = $2,410.25/month
$500,000 at 3.89% = $2,600.37/month
With a Variable Rate Mortgage, you would still be saving $190.12 per month.

Let's go back even further in time to our last recession from October 2008 to May 2009. Granted, the world has changed a lot since then, especially the real estate market! During this time period, Prime Rate rose to 4.50%.
In this scenario, even if Prime Rate rose to this past-recession rate of 4.50%, your rate would be 3.70% (4.50% - 0.80%) ...again, still lower than current 5-year Fixed Rates right now.
$500,000 at 3.70% = $2,557.07/month
$500,000 at 3.89% = $2,600.37/month
With a Variable Rate Mortgage, you would still be saving $43.30 per month.

Don't forget...what goes up must come down! If you look at historical Prime Rate changes over the last 14 years in the chart below, you will see that Prime Rate has fluctuated from as high as 4.50% to as low as 2.25%. With a Variable Rate Mortgage, remember that rates may rise and fall multiple times during the term of your mortgage. While rates may be high for a period of time during your mortgage term, you may actually pay less interest overall due to the period(s) of time where you saved interest (when Prime Rate was low).

​ Attention Variable Rate Mortgage Holders:
Do Not Panic.
The Bank of Canada raised its key interest rate by 0.25% today - just as they have been telling us that they would.
Citing uncertainty due to the unprovoked invasion of Ukraine, high inflation, and a stronger than expected first-quarter growth, the Central Bank did just as we expected.
The biggest question is..."SHOULD I LOCK IN?"
Remember: It is just a 0.25% increase. We knew this was going to happen at some time or another! It was part of your mortgage strategy.
Please consider the following:
The monthly payments on a $500,000 mortgage with a 25 year amortization and a Variable Rate at 1.50% was previously $1,999.68 per month.
A 0.25% increase in rate to 1.75% increases your payments to $2,058.95, which is a difference of only $59.27 per month. If you have a static payment variable rate, your payment won't change at all.
If you were to lock yourself into a 5-year Fixed Rate at 3.29%, an average 5-year fixed rate in the industry right now, your monthly mortgage payment would be $2,441.25. That is a difference of $382.30 per month, or $4,587.60 per year!

In addition to this $382.30 extra per month, you would be changing the flexibility of your mortgage. If you ever need to break a Variable Rate Mortgage, the penalty is just 3 months of interest (around 0.5% of your mortgage). In contrast, penalties for breaking Fixed Rate Mortgages are determined using the "Interest Rate Differential", a calculation that can be up to 4.5% of your mortgage balance!
The Bank of Canada would have to raise their Key Interest Rate SIX times before you arrived at where Fixed Rates are right now, as they usually move their rates in increments of 0.25%. It's important to keep in mind that the Bank of Canada makes just 8 rate announcements per year.
Prime Rates with the lenders will likely rise from 2.45% to 2.70% today. The highest Prime Rate has been in the last 12 years is 3.95%...only 1.25% higher than today.
I've done the calculations, and even if the Bank of Canada increases their rate by 0.50% per year for the next 5 years, you will still come out thousands of dollars ahead with a variable rate mortgage right now.
Remember, the Banks LOVE Fixed Rate Mortgages, and would love to see you locking into those fixed rates right now. The Economists that you often see quoted in the news are paid by the Banks. These same Economists have been predicting a rate increase of 1.50% or higher for over 10 years...and they have been WRONG. Historically, Variable Rate Mortgage holders have always "won" the rate game.
So...Don't panic! Keep calm, stick with your strategy, and remember that the sky is not falling.
NOW is the time to be taking advantage of this ultra-low rate environment!
Put aside that $382.30 per month into a savings account, if you are concerned about rates rising in the future, or
Use your prepayment privileges that came with your mortgage to make extra payments to pay down your mortgage balance quicker.
Be PROACTIVE!
And CONGRATULATIONS on all of the money you have been saving!!