Many Eastern Ontario and Western Quebecers took advantage of locked-in mortgages at or near 2 percent over the last couple of years. From a budget angle, it was a very smart financial move to lower your monthly costs. Hopefully, if you used the monthly savings to pay down your credit card debts and other loans, you reduced your overall debt and made progress towards being debt free.
But what if you did not use the monthly savings to help reduce your other bills?
What happens to your budget when your fixed term mortgage is up for renewal and the interest rates have tripled?
If you locked in a $300,000 mortgage in 2021 for five years at 2.1 percent, your average monthly payment would be approximately $1,532 per month. Roll forward to 2026 and your mortgage renewal comes up with a projected mortgage balance of $235,000 and interest rates are at six percent. Your monthly payment would increase to $1,684 or about $150 per month.
Today, with increases in the costs of almost everything we purchase, our budgets are already being stretched beyond limits. In Eastern Ontario, the largest employer is government-based where increases to income are set years in advance and well below the current inflation rate.
If you know that your monthly mortgage payment is going to increase, you need to take steps today to cut non-discretionary costs. This is to ensure your budget has the room required to support your increasing housing costs. Your salary increases are known but what is not known, is how much everything else will cost in three to four years. Examples of non-discretionary spending you can reduce are television subscriptions, trips, mobile phone plans, eating out, etc. Reviewing and tracking your spending on non-discretionary items keeps you aware of your use of funds. It also helps you seek ways to save at least $150 per month to allow for the increase in your projected mortgage payment.
If you wait until 2026, you may not have the time to make the necessary cost reductions to ensure your household budget is not exposed to a spending deficit.
Over the last 12 months, MNP LTD. has published survey reports of Canadians confirming they are $150 to $200 away, in their monthly budget, from being unable to pay their mortgage.
Follow up on reviewing your non-discretionary spending to reduce your costs. There is an immediate positive return to your budget and increased ability to service your mortgage and other debts.
Look for ways to increase your income, change your job, or work more hours. You can increase funding for your budget if you earn a new, increased income.
If the suggestions above seem unachievable or insufficient to balance your budget, reach out to MNP LTD., where one of our professionals can review options like a consumer proposal to reduce your debt today. By 2026, you would be ready for the dreaded budget buster mortgage increase.
CIRP, LIT
Senior Vice-President
Servicing: Ottawa, Ottawa - East, Ottawa - Bells Corners, Ottawa - Downtown, Arnprior, Cornwall, Ottawa - West, Pembroke
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