Lowerratesbringbigsavingsforhom
Fixed and variable mortgages are coming down and lower rates bring big savings for homeowners.
We have seen fixed rates drop by over 2% since the beginning of 2024. Variable rates have come down as well albeit slower as the Prime lending rate has dropped by .75% in recent months and more reductions are expected in 2024 and through 2025. Where will the rate land is yet to be decided. However, according to some economists we may see them drop and settle within in the next 6-12 months. But for some people who have a mortgage maturing now or even a year from now and who may be carrying more high interest debt, waiting isn’t an option. Inflation has taken a toll on people and families across Canada as they struggle to pay bills, buy food and other necessities. Their housing cost is just one factor. Rather than focus on interest rate alone, homeowners may consider how to lower the cost of borrowing and monthly payments.
I recently helped a family who renewed their mortgage a year ago with their bank into a higher short term rate for 3-years while they waited for rates to settle. But with the rising cost of life and higher mortgage payments they have used their line of credit and have a balance on their credit card. The cost of the higher mortgage payment and other debt is crushing them.
The total monthly payments for mortgage and other debt is $4500 per month.
As rates have some down about 2% they decided to refinance sooner than later to help bring down their monthly cost of borrowing. By paying out their existing mortgage early (even with a penalty) and consolidating the mortgage, line of credit and credit card balance they have lowered their monthly payment by $1635 (almost $20,000 for the year).
In 1 year they will have recovered the penalty and the lower interest rate will continue to save. The amortization is a bit longer. However, with a new 3-year term this will allow them to get back on track and with the savings they can stop dipping into their other credit, put some money aside in savings, or accelerate the pay down of their mortgage for a lower balance at maturity.
They have some comfort for now and a brighter future. We discussed a variable rate instead of a fixed term. They decided against that option. However, that could work for another family to provide more flexibility.
It is a good time to review options. If you have remortgaged in 2023 and now wondering if you can make any change to your situation, reach out and we can look at what is possible for you now and into next year. Lower rates bring big savings for homeowners