Preparing for Mortgage Payment Shock: Expert Advice and Solutions to Secure Your Finances

A term being used these days is Mortgage Payment Shock.  If you haven’t heard it, you soon will.  It is a surprise that many Canadians experience their adjustable mortgage payments increase and unexpected rates that are offered as mortgage renewals occur.

Why would monthly mortgage payments increase?  As mentioned, an adjustable-rate mortgage (ARM) is one where the interest rate for the current month is based on the rise or fall of prime interest.

Understanding Escrow: How Your Mortgage Manages Taxes and Insurance

Also, with each mortgage payment, certain amounts are allocated to cover the cost of real estate taxes, homeowners insurance, or other factors.  These additional amounts of money are held in a separate account called escrow.  Then, the mortgage company makes those payments on your behalf. As property taxes increase or insurance rates increase, the escrow needs to grow proportionately, and your monthly mortgage payment also increases.

There is a third factor.  If you are going to refinance your loan or restructure it in some way, either because the term of the loan is up or you have other reasons, the original loan is completely replaced with new terms and conditions.

Financial Preparedness for Homeowners

There are some ways that homeowners can prepare for these occurrences. They start with a detailed budget that includes a savings plan. This can provide a cushion when utility rates increase, the car needs repairs, or the mortgage payment is adjusted. In addition, a second savings account for emergencies is recommended.  This should equal an amount of at least two months of mortgage payments, and six months is better.  This can be a lifesaver in the event of cutbacks at work or a serious illness or accident.

At this point, Canadian banks are working hard on behalf of their customers.  They are offering the option to increase monthly payments, the ability to convert to a fixed-rate mortgage, make some lump sum payments, extend the term of the loan, or increase the number of years until the loan is paid in full. The Office of the Superintendent of Financial Institutions has authorized banks to allocate funds specifically to cover debt defaults. In response, the banks have tripled that amount compared to what they had set aside last year at this same time.

Ready to make smarter financial moves? Consult our mortgage brokers at today and secure your financial future with expert guidance!

Empower Your Mortgage Journey: Expert Guidance and Clear Solutions

If you would like to discuss your current situation or propose some changes in your mortgage arrangements, these are the people to contact now.  They are able to explain all of the choices in language that anyone can understand and are happy to answer any questions you may have.  This is an opportunity to get ahead of any payment shock and to feel confident in your decisions.