How to Approach Your Mortgage with Rising Rates

If you are purchasing a home or renewing your mortgage and are concerned about the impact of increasing rates here are some things to consider to provide some payment relief:

1. If your mortgage is renewing you may qualify to re-write the mortgage and extend the amortization to 25 or 30 years.
2. If you are on an accelerated payment schedule you can switch back to monthly at any point, which will reduce your monthly payment.
3. Analyze your spending.  You may be surprised at the savings that you will find.
4. Pay off higher interest rate debt.  Credit card rates range from 8% to close to 30%.  Pay off the higher rate debt first.
5. Consider a shorter term.  For example the 2 year rate ranges from 3.39% to 4.09% vs a 5 year fixed range of 3.74% to 4.39%
6. If you have a variable rate mortgage you can convert to a fixed term at any point.  The term needs to be at least as long as what is left in the variable term.
7. Variable rate mortgages should still be a consideration.  Banks are projecting prime to peak at 4.7% to 5.2% by the end of 2023, and most variable rate mortgages have a discount to prime ranging from 35bp (100 basis points is a percent) to 100 bp.  Be mindful of the fact that this is a projection only.

With rates on the rise it is increasingly important to lock your rate in as a first step in your housing search.

1. There is a difference between a prequalification and a preapproval.  The latter is a rate hold.  With a prequalification the lender reviews the paperwork associated with your income and down payment and holds the rate.   This can be important if either is complicated.
2.  Rate holds are typically for 120 days from date of submission to the closing date.  Some lenders will provide a longer rate hold for a new construction purchase (up to 2 years in some cases).
3. The rate hold can be refreshed at any point, but the new rate will be the rate on the day the refresh is requested.  This might be something to consider if rates are steadily moving up and a closing date will likely fall outside the 120 day window.
4. Pre-qualifications do not approve the property, just the covenant (the borrower). An appraisal of the home will typically be done for your lender to provide the estimated market value.
5. You can get preapproved and prequalified for purchases, refinances and switches to new lenders.

Karen Lemieux, License: 11759
Mortgage Brokers Ottawa

Apply online: www.karenlemieux.com
karenl@mortgagebrokersottawa.com

If you are in need of assistance in arranging a mortgage or would like a fuller explanation of terms or options we would be happy to help  arrange an appointment with a mortgage specialist who can help you design a mortgage that best suits your needs. As experienced Ottawa realtors^® we are always happy to answer your questions and would be pleased to assist you in purchasing or selling a home in Ottawa!

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