As the number of homeowners facing mortgage renewals with higher interest rates continues to rise, many find themselves in the difficult position of potentially having to sell their homes. However, experts suggest that there are steps financially strained homeowners can take before resorting to selling.
“It’s important to recognize that selling the house might be the only option for some homeowners,” says Becky Western-Macfadyen, a financial coaching manager with Credit Canada.
One of the first steps homeowners should take is to reevaluate their family spending, including regular expenses such as household maintenance, car repairs, and medical bills. Western-Macfadyen suggests listing all potential ideas on paper and finding ways to diversify income sources, such as taking on a second job or renting out a room in the house.
It’s important to be realistic and make sustainable changes, rather than focusing on small expenses like cutting out lattes, advises Western-Macfadyen.
As the mortgage renewal date approaches, homeowners should consider making a lump-sum payment towards their current mortgage to help manage the expected increase in monthly payments. Seeking help from a financial advisor or certified financial planner can also assist in determining an affordable and sustainable lifestyle.
When it comes to mortgage renewal offers, Tony Salgado, founder of AMS Wealth, advises homeowners not to assume that the first offer presented by a lender is the best rate. Working with a mortgage broker can help homeowners shop around for the best rates and potentially save a significant amount of money.
Salgado also emphasizes the importance of considering mortgage amortization and choosing between fixed and variable rates to alleviate the burden of higher interest rates upon renewal.
While it may seem that the surge in mortgage rates is only affecting low- or middle-income households, Salgado notes that it impacts all individuals with a mortgage, regardless of income level. Those with higher incomes may have more flexibility in adjusting to higher borrowing costs by moving around assets or capital.
In some cases, younger homeowners may turn to their parents for help in making mortgage payments, as a form of an advance on their expected inheritance.
If homeowners have exhausted all other options and are unable to meet the mortgage payments, it may be time to consider selling the property. Western-Macfadyen suggests opting for a sale rather than facing foreclosure to avoid selling below market value and incurring additional costs.
However, selling the house does not absolve homeowners of all responsibilities. They still need to cover leftover utility expenses and house insurance until ownership is transferred.
If the house sells at a loss, the homeowner is responsible for covering the difference, which may come from other investments or through alternatives like consumer proposals or bankruptcy.
After the house is sold, there are new challenges to face in the housing market, including higher interest rates, soaring rental prices, and an overall affordability crisis. Western-Macfadyen warns that there is no guarantee that rates will fall again anytime soon.
Ultimately, homeowners who are renewing their mortgages in the next year or two should be prepared for the financial challenges ahead.
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