Have you been on the market for a new home, possibly even your first? If so, you’ve likely been looking into your local residential real estate market. As evidenced by findings from the Canadian Mortgage and Housing Corporation, interest rates are set to increase over the next few years. Whether you wish to secure a variable or fixed rate mortgage, these impending increases might have you wondering whether the time to buy is now rather than later.
Before making such an important decision, know that there are ways to minimize the impact that increasing mortgage rates can have on your finances in the long run. Today, let’s go over a few approaches that can be taken to minimize budgeting concerns, helping you make the very most of your new home for less.
Increase Your Down Payment (if Feasible)
If you have a variable rate mortgage, your interest rates will likely fluctuate as time passes. This can make it difficult to keep your monthly expenses under control if the rates are increasing. Of course, even with a fixed rate mortgage, there’s a chance that your rates will increase considerably at the time of renewal.
One possible way to keep your costs under control is to make a more significant down payment. Reducing the outstanding balance, meaning that you’ll borrow less money, will help to mitigate the financial stress of higher interest rates. Of course, not everyone can afford such a large upfront payment, but you’ll be pleased to hear that even going from 5% to 10% can make a difference.
Narrow Down Lenders (and Their Options) Through a Mortgage Broker
Every lender, including major banks, has its own unique set of terms and conditions to bear in mind, not to mention its own selection of mortgage products. Here is where working with a dedicated and experienced mortgage broker can come in handy, as these professionals utilize their connections and years of market insights to help you make a well-informed choice.
Many prospective homeowners turn to a brokerage to identify the best rates currently available. Not only that, but together, you’ll be able to determine whether a variable or fixed-rate mortgage is the ideal choice for your budget and needs. Either may be a viable option, depending on your circumstances. For example, if you have a fixed rate mortgage and your time for renewal is inching closer, perhaps you’d like to avoid renewing at rates that are either just as high or increased even further. What goes up usually comes down, after all!
Protect Your Credit Score
While a higher credit score doesn’t grant you access to special savings on interest rates, having a score that is too low (below 680) may make it difficult to get preapproved for a mortgage. Not only that but, if you apply to multiple lenders yourself, you’ll risk lowering your credit score further. Working with a mortgage broker mitigates the risk of the latter, as they help the homeowner narrow down options with a single application.
Increasing Monthly Payments
Another approach is to pay more than the minimum required for your mortgage. For example, let’s say that you have a variable-rate mortgage and can afford to increase your payments so that they are similar to fixed-rate alternatives. These payments contribute toward your principal and can help knock down your mortgage earlier than planned. This can mean paying less interest overall.
Want to work with an experienced broker when it comes to planning your mortgage and getting the best possible rates? The Mortgage Advisors team is here to help you make a well-informed and cost-effective decision. Contact us today to get started!