Extend the amortization period
This is the first idea that comes to mind, and although it is not ideal, we see that more and more people are opting for this solution, points out Jean-Michel Klinkow, mortgage specialist at BMO. This involves postponing the expiry date when renewing. The result obtained is that the monthly payments will generally remain approximately the same, but it will take longer to pay off the loan. And it must be understood that by opting for this strategy, the borrower will find himself paying more interest for longer.
Prepare quickly
To avoid having to extend the amortization period, National Bank experts Andrée Desrosiers, residential financing leader, and Vicky Wistaff, individual performance consulting strategy, insist on not waiting to be placed in front of the situation and to prepare well.
This mainly involves reviewing your financial statement and your budget, determining the amount that you can allocate to mortgage payments, and evaluating whether it is better to opt for a fixed or variable rate.
“The trap would be to look at the mortgage in silos, rather than as one of many elements of the budget,” they say.
Equity in property
Approaching the renewal of the mortgage loan is a source of worry which can in many cases turn into psychological distress. Hence the importance of quickly becoming well informed and evaluating all solutions, even going as far as the possibility of selling the property and becoming a tenant, point out the National Bank experts. But for those who do not want to consider the option of selling the property, they suggest that they evaluate the equity they have built in their property and which is an intrinsic part of their financial balance sheet. Owners will then be able to take advantage of this equity to refinance their mortgage loan over a longer period, with complete peace of mind. They can always turn things around at the next renewal if interest rates have fallen enough.
Take advantage of your mortgage contract
Mortgage loans often have several features that you can take advantage of to make your loan easier to manage, points out Jean-Michel Klinkow. For example, some loans allow you to make slightly higher payments to get ahead, with the possibility of taking this money back if necessary. “Those who have done so can now take advantage of this to somewhat cushion the increase in payments caused by renewing at a higher rate,” he says. Some loans also include the possibility of deferring one monthly payment per year at the end of the amortization period. Be sure to find out if your contract has this feature.