Tax Tip Thursday

Hopefully interest rates are coming down next week again, but I know a lot of people are struggling or are going to be struggling when it comes to renew their mortgage if they have not done so already.

There are a lot of people that are falling behind on their mortgage that never have before. The stats are showing about 25% increase in mortgage defaults this year over last year, according to Equifax. I suspect that is going to get a lot worse over the next 18-24 months unless interest rates fall a great deal.

Some Canadians are in for an especially big shock upon renewal — those who bought their homes during the pandemic, when interest rates were low and house/cottage prices were high. Back then, banks were practically giving (mortgages) away. Their rates have been fixed for the last few years, but now their mortgages are up for renewal.

People have seen and will see mortgage payments go up 50% easily. This could be very painful if you are not ready. The other problem is a some properties are not worth as much as they were when they purchased them. This can also pose problems when you go to get a renewal or new mortgage.

I talked about earlier this year or last year, but the stats are proving it — this IS happening NOW.

So what can you do?

1. Prepare a budget

This is very important, especially if you are close to break even every month already. Figure out what you can afford. You will have to do this anyway if you are talking to a lender.

2. Talk to your lender

Do not put your head in the sand. Talk to them ahead of time and they will hopefully work with you to come up with a plan. It is MUCH harder to negotiate once your credit score has been hit with a delinquent payment.

3. Skip a payment

Many mortgages give you the opportunity to miss a payment with recourse. This a VERY temporary measure and you should use only as a last resort and you might want to take advantage of that month to get new terms or a new mortgage in place before the next payment is due.

4. Go for a longer amortization

I am not sure how easy this is to do with an existing mortgage, but it might be a consideration if you are renewing. While under optimal circumstances, most people are trying to pay off their mortgage quicker and will opt for shorter amortizations. If cash flow is an issue, longer amortizations can help with that in the short term (for the term of the mortgage).

5. Shop the rates

If you are renewing your mortgage, shop around, see if you can better terms, better rate, different amortization, etc….

6. B lenders

These lenders will charge higher rates, which is most likely not in your best interest, but you may be able to structure a better mortgage for yourself.

7. Use some of your equity

Some people have gone as far as to use some of their equity to supplement their mortgage payments for the next few years. This is dangerous, but again maybe necessary.

8. Downsize

Never a pleasant thought, but possibly a consideration, you could downsize. Sometimes this is the right time and might be a great move for yourself.

Need Help With the Tough Times?

A lot of these options are not ideal. While your accountant might not be able to directly help with your mortgage predicament, they definitely can look at your taxes and other finances to make sure it’s set up to save you as much money as possible. Keep more of your money in your pocket and book an appointment today.

Disclaimer:

This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal or tax advice nor can it or should it be relied upon. All tax situations are specific to each individual. If you have specific tax questions you should book an appointment for a 1 on 1 consultation.