Is Your Budget Ready for Higher Mortgage Rates?
Tips to prepare your personal budget for increased housing costs
By Carmen Chan
If you’re a Canadian homeowner, you might be wondering if your budget is ready for higher mortgage rates. If the idea of renewing your mortgage has you stressed, you’re certainly not alone. According to data from the Canadian Mortgage and Housing Corporation (CMHC), 2.2 million mortgages — 45% of outstanding mortgages — will be up for renewal in 2024 and 2025. But don’t worry, by proactively adjusting your budget, you can navigate these changes with confidence. Here are some tips to get your budget ready for higher mortgage rates.
1. Understand Your New Mortgage Rate
Before making any adjustments to your budget, it’s essential to understand how your new mortgage rate will impact your monthly payments. You can start by requesting a mortgage renewal statement from your lender or broker and making an appointment to speak with them about the changes.
In the meantime, you can also quickly and easily estimate your new monthly payments with an online mortgage calculator. Make sure you ask about any additional fees or changes in terms, so you can calculate that into your adjusted budget. Knowledge is power and this kind of research is a good way to get a clear picture of the new rate and how it will affect your mortgage payments.
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2. Reassess Your Financial Situation
If you haven’t already done so, reassess your financial situation. Mortgage renewal time is a good reminder to check in with your finances and make any needed adjustments. Unsurprisingly, a higher mortgage payment will mean a tighter budget. To make sure you’re prepared, take stock of your income, expenses, and any existing debts. You can also look at possible areas you can cut back on or ways to increase income and help boost your revised budget.
3. Create a Revised Budget
With a clearer understanding of your new mortgage payment and overall financial picture, you can create a revised budget that will set you up for success. Make sure that while you’re allocating funds to cover your increased mortgage payment, you’re not missing out on other essential expenses, including an emergency fund, if you don’t already have one.
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4. Explore Cost-Saving Measures
If you’re struggling to balance your budget with the added pressure of higher mortgage payments, consider trying out some cost-saving measures. Remember, multiple small changes can add up to significant savings and make a big difference. Some areas to start with:
- Review and reduce your utility bills by conserving energy and water
- Shop around for better rates on recurring expenses like your cellphone or internet plan
- Get organized and check for unused subscriptions and other silent spenders
- Consider refinancing other debts with consolidation options to lower interest rates. Sometimes other debts, not your mortgage payment, are the true source of your financial challenges.
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5. Find Ways to Boost Your Income
If possible, explore ways to boost your income to offset higher mortgage payments. If you’re already working, start by exploring opportunities for career advancement or salary increases within your own company or industry. If that’s not a possibility, consider freelancing, starting a side hustle, or look for other ways to boost your income.
If you have the space and capacity to do so, consider renting out a room or storage area in your home. Sharing your home even temporarily, can help you find your footing with a sustainable approach to balance your budget and ensure financial stability for your family.
6. Pay Down Your Debts
If you are carrying a heavy debt load, then finding room in your budget for increased mortgage payments becomes that much harder. The interest on most credit cards and lines of credit could amount to a few hundred dollars each month. Eliminating those bills will free up funds that can be allocated toward increased mortgage payments.
7. Build an Emergency Fund
It can be tempting to skip building an emergency fund in favour of other costs, especially if you’re in debt. But an emergency fund acts as a financial cushion in times of unexpected expenses or economic shifts. It can provide peace of mind and stability as you adjust your budget around higher mortgage payments and can help you avoid falling back into debt when those inevitable, unplanned expenses arise.
To make it as easy as possible to save up for emergencies, set up automatic transfers to a dedicated savings account so you don’t have to remember to do it every time you get paid. Use any surplus funds or bonuses to contribute to your emergency fund, with the aim of having three-to-six months worth of expenses stashed away.
Reach Out for Professional Help to Manage Higher Mortgage Payments
Preparing for higher mortgage payments can seem daunting, but professional help is available. Our friendly, accredited financial counsellors can guide you through the steps needed to manage these and any other financial changes effectively. Reach out to us for help to create a budget that accommodates your current financial reality, and which can be adjusted for future changes. With the right strategies and resources in place, you can confidently face the challenges that come with higher mortgage renewal rates, and stay on track toward financial stability.
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