Hear something ticking?

The right mortgage strategy is like cutting the right wire (wait, not the red one!)

Do higher mortgage rates have you feeling like a budget explosion awaits?

Here are ways to help diffuse both your expectation of mortgage budget trouble and even actual budget trouble.

While it may seem like your lender contract is wired against making major changes, like lowering your payments or switching to a better rate — you may have more flexibility than you think (and if you don't, that's another thing to solve).

Depending on your situation, an expert broker familiar with those (mortgage) wires may have advice that not only helps you ease a daunting budget situation but can also help you save more money than you thought possible.

Avoid hitting your trigger point (worse than a trigger rate).

"Of borrowers with a variable-rate, fixed-payment mortgage, we estimate that about 50% — or nearly 13% of all Canadian mortgages — have already reached their trigger rate."
– Bank of Canada, Nov. 2022

Do you have a fixed-payment, Variable-Rate Mortgage (VRM) with a Big Bank? By now, you are likely well aware of the Trigger Rate lying-in-wait in your mortgage terms, where your payment no longer covers the interest portion. If the lender has contacted you with options, it's important to consider them — and then talk to us about other options that may be available to you.

Here's the ticking-time-bomb part: For your static payments, once you hit your trigger rate — if you or your bank decide to let your current payments ride (not adjust them upwards) or you wait to put down a lump sum, lenders may push the unpaid interest onto your mortgage balance, called negative amortization.

So while you're going about your day, your mortgage may be ticking up until it's too big for your budget to handle when it comes time to renew, or before that, if your balance surpasses a critical point.

For insured mortgages, if your balance exceeds 105% of your home's Fair Market Value (FMV), or 80% for uninsured mortgages, you'll be required to take immediate action or be in default. With home prices trending down and qualifying rates higher, you may run out of options to handle your payments.

Lenders and insurers may work with those who are having trouble coping with rising payments, though it's taken on a case-by-case basis, and you'll have to prove that you can no longer afford your mortgage payments.

If you've hit your trigger rate (or even before that!), talk to an expert True North Mortgage broker for targeted advice. They'll be able to look at ALL your options — such as switching lenders or to a fixed rate, or finding the right strategy to reduce debt. Big Banks are limited in the solutions they're able to offer you.

Clear some room for your floating variable-rate payments.

Feeling maxed out by the payment increases of your Adjustable Variable-Rate mortgage payments (ARM)?

Here are two options during your term (more may be open to you if you talk to an expert True North broker). They involve extending your amortization, which means you'll likely pay more interest over time, but if monthly cash is king, you'll get some needed budget room.

1. Have you paid lump sums on your mortgage during your term? Without having to refinance and pay the penalty or change your rate, you may be able to extend back to your original amortization (minus time lapsed) to lower your payments. A fee for this extension may apply (THINK Financial doesn't charge a fee for this service).
2. Or, you may be able to refinance back up to 25 years (or even 30 years or more) for lower payments if you're already a few years into paying down your mortgage. You'll need to re-qualify and incur some costs, such as a 3-month interest penalty and related fees (and refinance rates may be higher than your current rate), but it may be worth your while to lower payments.

In the future, if your mortgage has flexible pre-payment options, you can draw your amortization back down again (through additional payments or lump sums) if rates go lower and you have more budget room.

Need to 'cut the cord' on more variable rate increases?

The central bank also estimates that mortgage payments for borrowers who signed up for variable-rate mortgages in 2021 had increased by an average of 20 per cent by the end of October.
– Shantaé Campbell, Financial Post, Dec. 1, 2022

A True North broker can help you decide if switching to a fixed rate will help eliminate your budget jitters. With the spread between variable and fixed rates narrower than ever, locking in will stabilize your mortgage budget, and you won't need to deal with further prime rate increases (if they happen). Keep in mind that if rates go down later, breaking your fixed-rate term to get a lower rate may incur more-costly penalties (IRD vs 3-months interest).

You could also choose a fixed term that's shorter than the typical 5-year one (such as a 1, 2 or 3-year term) to 'wait out the rate clock' and renew sooner into a lower rate without paying a penalty to break.

Need 6 months of lower payments? Switching from your current lender to THINK Financial's new 6-month, low fixed rate product Rate Relief™ may offer you some temporary budget room. If it's right for you, you'll have the choice at the end of your reprieve to renew into any other mortgage rate type or term length that works for you (conditions and fees apply).

Relieve the suspense of what's waiting for you at renewal time.

Worried about facing higher rates and payments on your fixed-rate mortgage at renewal? You may not realize that higher qualifying rates may reduce your options for a better rate. Talk to an expert True North broker to see if there are ways out to a lower rate or payments. Read more here.

Are you a first-time buyer that maxed out your home affordability?

If you find it challenging to handle the increasing payments of your variable rate or are concerned about your renewal (get a helpful reminder here), getting targeted advice can help you feel more in control of your mortgage details.

Our brokers are real people who understand that even a few dollars squeezed into an increased payment frequency or providing helpful advice to reduce costs can make a difference (for example, home maintenance tips to save or debt-reduction strategies).

The important thing is that you feel you have a trusted broker in your corner to call whenever you have questions or need a helping (mortgage) hand.

Offence can be the best defence. Invest in your mortgage to keep your savings in check.

With today's economic volatility and higher mortgage interest costs, investing in your mortgage principal guarantees that you'll save some 'after-tax' cash. Not only will your mortgage investment act as a buffer against higher rates, but you'll pay off your mortgage sooner to save even more, later.

Stop the clock and save the most.

Even if you feel financially comfortable handling your mortgage payments, a quick chat with your expert broker is all you need to ensure that your details are fine-tuned heading forward.

Ask about portability (maybe you'll decide to move during your term), payment frequency (to pay down your mortgage faster) or a refinance (if you're planning on home upgrades and are wondering about your best rate).

Anywhere you are in Canada, our friendly True North Mortgage brokers are online, on the phone, or at a store near you — ready to have a great conversation about your mortgage needs.