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Mortgages And Debt: Are You Ready For Renewal?

During the pandemic, Ontarians enjoyed historically low interest rates, making homeownership more accessible. However, as mortgage renewal dates loom, many homeowners face the unexpected challenge of skyrocketing payments due to rising interest rates. Here’s what you can expect when renewing your mortgage and how to mitigate the financial strain of increased mortgage debt.

a couple determining if they can afford to keep their mortgage or sell

Variable-Rate Mortgages

Variable-rate mortgages, tied to the prime rate, are particularly vulnerable to interest rate fluctuations. With rates on the rise, Ontarians with variable-rate mortgages may experience a significant increase in their monthly payments during renewal compared to the favourable terms secured during the pandemic. Some economists estimate homeowners could face monthly increases of as much as 40 per cent by 2026, which many families just can’t afford, potentially leading to a rise in personal bankruptcies.


Fixed-Rate Mortgages

Fixed-rate mortgages provided stability during times of uncertainty, offering consistent monthly payments. However, when it’s time for renewal, homeowners may face the stark reality of higher interest rates than what they initially locked in. While not as significant as variable-rate mortgages, those with five-year, fixed-rate contracts may see monthly increases of up to 15 per cent.


Estimating Your Monthly Payments

To gauge the financial impact of renewal, homeowners can use online mortgage calculators. You can estimate your new monthly payments by inputting updated interest rates and the remaining loan balance. Knowing your financial obligation in advance can allow you to adjust your budget or look for solutions.


Preparing For Renewal

Preparation is essential before committing to a renewed mortgage. Homeowners should thoroughly review their budget, considering changes in income and other expenses. For those with heavy debt loads, seeking guidance from a licensed insolvency trustee can help pay down credit card debt, student debt or CERB repayments now, easing the burden before mortgage renewals come due.


Market Implications

Rising interest rates not only impact individual households. They also shape the broader real estate market. As mortgage debt becomes more of a problem, the demand for homes may slow down. Moreover, the market will likely see an increase in properties for sale as homeowners facing insurmountable mortgage debt choose to sell rather than renew at higher rates.


Avoid Bankruptcy with Our Debt Management Services in Eastern Ontario

At D. & A. MacLeod Company Ltd., our licensed insolvency trustees (LITs) can help you navigate stormy financial seas, whether dealing with mortgage debt or filing for personal bankruptcy. Contact us today to schedule a free, confidential, no-obligation consultation and discover how we can calm the waters and steer you toward a solid financial future. You can also meet with a LIT via a virtual appointment from anywhere in Canada.


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