On October 26, the Bank of Canada announced yet another interest rate hike in its ongoing fight to tame the rate of inflation, with an increase of 0.5%. In the long run, these interest rate increases should help ease fears that everyday goods and services are becoming less affordable – but they’ll also make borrowing more expensive. Canadians with variable rate mortgages will be paying more towards interest, and less towards their principal. Some will even reach their trigger rate, the point when payments aren’t enough to cover the interest accrued and can no longer pay down the principal. (You can learn more about trigger rates and how they’re calculated here.)
These interest rate hikes may have you wondering how you’ll be able to manage your mortgage payments. But there’s good news: your advisors are on standby to help. No matter where you are on your financial journey, there are 3 major benefits to proactively talking to your advisor about your mortgage, sooner rather than later.
Peace of mind knowing where you stand.
It’s no surprise that everyday Canadians are feeling the squeeze of inflation on their day-to-day budgets. Inflation has been showing up on grocery bills and at the pump for several weeks now, leaving many starting to worry about how to keep saving for the future. But when you proactively speak to your advisor about your mortgage, they can help you take an honest look at your financial situation and help you carve out a path forward that makes sense for you.
In a study conducted last year with the help of Ipsos Reid, it was revealed that 80% of survey respondents who had consulted with a financial professional, since September 2020, felt confident about their finances over the next 12 to 24 months, compared to just 60% who hadn’t consulted an advisor in that same period.
Though no one can say for sure what the future holds, with the right financial advice, your advisor can help you build a plan to guide you through the uncertainty and manage your mortgage.
You gain more control over your financial decisions.
As the Bank of Canada tries to fight the rate of inflation by raising their overnight interest rate, knowing in advance how much you might have to pay when you renew your mortgage can help you start budgeting ahead of time. This gives you control over your financial decisions, by keeping you informed and knowledgeable about the ways major economic trends will affect your budget.
Consider the following example. Five years ago, if you made a down payment of 10% on $500,000 home and entered a fixed-rate mortgage term at 2.69% for 5 years ago, your monthly payments would have amounted to roughly $2,122. In today’s interest rate environment, you might be looking at an increase on payments of $445 per month – a 21% increase since 2017.
That’d be quite a shock, if you didn’t see it coming. But by proactively discussing your mortgage with an advisor, you can anticipate changes like these and figure out how they can fit into your budget, so you’re not scrambling to adjust at the last minute.
You get to see the big picture.
A proactive conversation with your advisor will not only help you understand upcoming changes to your mortgage, but can also show you how your mortgage affects other aspects of your finances, including your savings, investments, and debts.
It’s important to look at the ways your mortgage affects your other financial goals. Despite growing concerns about the rising costs of homeownership, a recent survey shows only 39% of Canadians include mortgage payments in their monthly budgets. What makes this finding especially concerning is that mortgage payments make up as much as 35% of monthly expenses for Canadians who have them.
Whether they’re on your monthly budget or not, your mortgage payments could be making an enormous impact on your budget and other financial goals. Proactively speaking with your financial advisor can help you understand the bigger picture, so you can stay on track with all your financial plans, not just your mortgage.
We’re here to help.
Proactively speaking with your advisor about your mortgages keeps you confident in your plans, gives you more control over your financial decisions, and helps you see the bigger financial picture. Get the conversation started when you book an appointment online here or call us at 1.888.517.7749.