With interest rates higher than they’ve been in many years, coupled with inflation at a 40-year high, many Islanders are trying to deal with mortgage payments that are much higher than they were expecting.
For people looking to buy now, or with a mortgage renewal coming up, there are a lot of options — fixed rates, variable rates, fixed rates with variable portions and vice versa.
“With so many different options available on a mortgage it becomes almost like options on a vehicle,” said Darryl Murphy, a financial advisor with Red Oak Financial in Charlottetown.
But just as the options on a car won’t improve its reliability, the options on a mortgage won’t change the central issue: it’s a loan that you have to pay back.
“It is always a balancing act between pay now versus pay later, and how much do I need in terms of cash flow now versus later,” said Murphy.
You better shop around
There are different ways that you can spread those payments out, while keeping in mind that paying over a longer period of time will mean lower payments, but paying more in interest over the full life of the loan.
If you have a renewal coming up, one of the things you can do, said Murphy, is start looking around right now.
“You can shop your mortgage up to six months before your renewal date, which gives you time to look around at different rates,” he said.
“Without any penalty, you can break your mortgage up to six months before.”
Renewal time is also an opportunity to pay off some of the capital on your loan. This will mean paying less interest in the long term, but, said Murphy, it is not an option available for everyone. You need to have the cash available to make that payment.
Extending your mortgage
In more dire circumstances, in particular where people are holding other debt requiring payments, more serious measures are required.
“A lot of people are going through some serious financial restructuring,” said Paul Trainor, a mortgage broker with the Atlantic Business Federation in Charlottetown.
With refinancing, a mortgage is renegotiated and other debts are folded into it, secured against the value of your home. The mortgage interest rate will be lower than virtually any other loan available.
It is also possible just to extend your mortgage to lower those payments.
“If you have a 15-year mortgage, maybe it’s time to talk to a mortgage broker and there’s lots of great ones on Prince Edward Island, and maybe get that extended over to 25 years,” said Trainor.
It’s difficult to give general advice, said Murphy, because not only do individual situations vary, there are also many potential solutions.
Like Trainor, he recommends getting some professional advice.