3 Strategies to Deal With a Jump in Interest Rate at Your Renewal

Many Canadians are feeling stressed about their mortgage renewals. Interest rates are A LOT higher than what they were expecting and in many cases, significantly different from their current terms (think about an increase from 2% to 5%).

The current rate environment may feel terrifying and impossible to navigate. But we have some ideas that could help combat rising rates and keep your monthly payments as low as possible.

1. Make a Lump Sum Payment

If there are funds available to you, you could consider making a large lump sum payment. At renewal, there is a window of time where the mortgage is considered open and homeowners have the option to make a payment—not bound by their mortgage prepayment privileges—to reduce their overall mortgage balance.

This can be a great option to achieve a smaller mortgage balance and lower monthly payments in the next mortgage term.

2. Increase Your Amortization Length

If you originally chose a mortgage with a 25 year amortization, and at renewal there is only 20 years remaining on your mortgage term, you might consider stretching that amortization length back out to 25 or even 30 years.

This can be an excellent way to achieve a lower monthly payment and manage your cash flow. And here’s the thing—you’re not locked into that choice forever. At your next renewal, if rates are lower or you are comfortable with higher mortgage payments, you can always reduce your amortization back down to 20 years.

3. Do a Cash Flow Overhaul

If your mortgage payments are going to increase significantly at renewal and this really stresses you out, it might be time to do a whole cash flow overhaul.

If you live in Alberta, its likely your home value has increased over the last few years. Refinancing your mortgage and pulling out available equity to pay down other high interest debts can really help to manage your monthly cash flow.

Have a professional take a look and see what can be moved around or eliminated to reduce how much you are making in payments each month.

At the end of the day, the most important thing you should do when approaching your mortgage renewal (at least 120 days before) is to make sure you meet with a mortgage professional and discuss the options available to you. Mortgage brokers can evaluate your current expenses and provide the best strategies for your personal situation. And the more time you give them leading up to your renewal, the better they can time the market to get you the best terms available.

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