Prolong the mortgage amortization period
Extending the amortization is a popular option these days, with 25-plus year mortgages becoming the norm. Recently, RBC reported that 43% of its residential mortgages had amortization periods of more than 25 years. Larock says that if a borrower has 20% equity in the property, they might be able to qualify and refinance for a 30-year mortgage. This slows the pace at which the mortgage will be paid off, but lowers payments.
However, this strategy should only be used as a last resort, says Warden. “All this means is you’re paying a lot more interest due to the extended period,” he says. Plus, this could mean you still have a mortgage in retirement, when your income is lower or non-existent.
Play it safe
Instead of shopping for a new rate at renewal, you may want to stick with your current lender. If you have been diligently paying off your mortgage “you can renew with that lender without requalifying—even if you wouldn’t be able to requalify based on today’s rates,” Larock says.
And, with the current economic uncertainty, the conservative move is to renew at a fixed mortgage rate, he says. Variable rates are currently high and it’s unclear when they will fall. “We don’t know what the future holds—and fixed rates are lower now,” he says.
Consider prepayments
If your mortgage allows prepayments, consider putting any additional income you earn in the future towards the mortgage. “You can throw money at the mortgage using mortgage prepayment allowances and shorten the amortization,” says Larock. “A lot of lenders offer a 20% annual prepayment allowance, and if you max that out over five years, you could pay the whole thing off in five years.”
Consider non-traditional sources of funds to pay off your mortgage sooner. For instance, Warden recently helped an elderly couple to pay off part of their mortgage via a retroactive WSIB settlement. “Their mortgage is about half of what it was 24 months ago,” he says. “Now they can see potentially retiring.”
Get creative with your mortgage
Warden also suggests looking at the performance of your investments, such as those in your tax-free savings account. If the rate of return on your investments is less than the interest rate on your mortgage, paying off the debt first can net you a better return. “Take that money out and pay down the mortgage,” he says.
Last resort: When should you sell your home?
In most cases, following these tips, working with a mortgage expert and communicating with a lender can lead to a payment plan that’s manageable. If for some reason you can’t make your mortgage payments and are forced to sell your home, sell earlier rather than later, says Larock. “If the home is in foreclosure, you’ve lost control of the process,” he says. “Don’t wait until the decision is made for you.”
Anna Sharratt
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