According to Véronique Beaudin, a Planiprêt broker in Rimouski, there is a remedy for the financial stress caused by rising rates: education. She invites future buyers to learn more about the mortgage market and to renegotiate their rate later.
Indeed, one of a buyer’s main concerns is whether rising interest rates will impact their chances of getting a mortgage approval. It is important for prospective buyers to know that the rate increase should not affect their ability to get approved for a mortgage. This is because the interest rate is only one part of the equation and banks take other factors into consideration when analyzing applications, such as creditworthiness and down payment.
Here are the golden rules to know when looking for a mortgage loan:
Know your borrower profile and expectations;
To begin with, a borrower profile is defined according to a buyer’s income, assets and creditworthiness. In general, banks apply stricter criteria for those with low income and limited assets. So your mortgage expectations must be realistic.
Understand the different types of mortgages available on the market;
Variable rate or fixed rate, there are several mortgage products available on the market and it is important to be well informed before making your choice. Educating yourself is important, but don’t hesitate to consult your real estate broker if you are dealing with one. He or she will be able to guide you towards the product or professional that best suits your situation.
Understand the process and costs associated with mortgage approval;
It is important to understand the process and costs involved in getting approved for a mortgage. Most banks require a minimum down payment and application fee as well as payments for credit checks, etc. Your real estate or mortgage broker can guide you on what to expect and how to reduce these costs.
Compare rates from different financial institutions;
Whether you research rates on your own or with the help of a broker, comparing rates and fees offered by different financial institutions is essential. Banks offer a variety of products and it is important to find a loan that fits your budget and meets your needs. An increase in interest rates in 2023 can be stressful, but by having a good understanding of what is happening in the mortgage market, you will be able to get a loan with an attractive rate that meets your needs.
2- Repayment strategy
1. Accelerated repayment strategy: It consists in making additional monthly payments to reduce the size of the loan. In a context of rising interest rates, it may be wise to reduce the principal and save on interest over the long term.
2. Save on non-essential expenses: This may seem like a very simple solution, but it is just as effective. If you find that your monthly budget is tight, try cutting back on your non-essential expenses and using the money you save to pay off your mortgage.
3. Refinance your loan: This may be an option to consider if you have good credit and want a lower rate. You’ll have to pay a termination fee and a new loan fee, but if you can get a lower payment than what you’re currently paying, it may be worth it.
According to Performance Hypothécaire broker Serge Lafrenière, it’s better to opt for a short-term variable rate and fix your rate when it’s convenient. According to him, rates will probably come back down in a year or more. Philippe Simard, Quebec mortgage director at Ratehub.ca, also advises clients to choose variable rates since the Bank’s prediction that inflation will drop to 3% by the end of 2023 makes this type of rate more attractive.
Dominic Claude of Desjardins Wealth Management adds that those who already have a fixed rate mortgage can be proactive and simulate their payments at 5% or 6%, then put the money aside, or better yet, increase their mortgage payment. The money applied to the mortgage will be used as less debt at maturity.
3- Consulting with professionals
A broker is an excellent resource for short-term real estate buyers. But before taking the plunge, a real estate broker can help you understand the market and its requirements for borrowing and mortgage financing, especially in an environment of rising interest rates.
If a broker is not appropriate, there are similar services that can also be helpful, such as financial or mortgage consultants and even your personal banker. In addition, if you already have a mortgage, your broker or banker can help you review and pay off the loan sooner to make the most of the interest that is accruing.
In summary, rising interest rates in 2023 are not a foregone conclusion. Understanding the market and the different types of loans available is the first step in finding the right solution. Using a professional real estate broker, understanding the repayment process and borrower profile, and learning about the subsidies and grants available to buyers are all steps you can take to navigate through this interest rate increase.