As interest rates continue their upward climb, a growing number of homeowners grapple with the reality of significantly steeper mortgage repayments during renewal periods. Consequently, increasing numbers face the ominous specter of selling homes they can no longer afford to maintain.
Nonetheless, experts underscore that selling need not be the immediate recourse. Numerous viable alternatives exist for financially pressed homeowners, far removed from placing a “For Sale” sign on their yards.
“Indeed, it is imperative to recognize that for some, selling may indeed become the ultimate and only viable choice,” states Becky Western-Macfadyen, a seasoned financial coaching manager with Credit Canada.
Commence with overhauling household budgeting starting with a careful appraisal of income and expenditure, including the regular costs of household upkeep, automobile maintenance, and medical expenses. She advises at this stage to map out a diversified income strategy – considering options such as a second job, requesting a pay hike, or renting out an extra room.
Rational realism, she insists, is essential. This even extends to debilitating financial predicaments warranting severe spending cuts. She adds, quick fixes such as refraining from luxury coffee purchases will not suffice. “You want to make sure you’re making some big changes and it needs to be sustainable.”
One of her key suggestions is directing any surplus funds toward the prevailing mortgage with a one-time payment. This works to offset the inevitable higher repayments once the mortgage renews at a steeper rate.
Homeowners may also benefit from engaging financial advisory or certified planning services. Tony Salgado, Founder of AMS Wealth, asserts such professionals can provide invaluable insight to maintain a fiscally feasible lifestyle.
Furthermore, as mortgage renewal looms, Salgado urges homeowners not to hastily accept the initial offer. “If you have the opportunity to work with a mortgage broker, make sure you shop around,” because even negligible percentages can translate to considerable savings.
Surprisingly, the uptick in mortgage rates is impacting not simply low- to middle-income households, but high-income mortgage carriers as well. However, individuals with higher income levels have the ability to readjust by reallocating assets, capital, or retirement savings to accommodate increased borrowing costs.
In certain instances, younger homeowners find solutions in their elders—seeking financial help from parents as an early inheritance. “A lot of older generations would like to see the fruits of their hard work benefit the family while they’re still alive,” notes Salgado.
Nonetheless, when all avenues are exhausted and selling the house becomes the only choice, Western-Macfadyen suggests opting for a sale rather than facing foreclosure which often results in losses and added costs.
Even post-sale, homeownership responsibilities continue. There are additional expenses to settle such as unpaid utilities and insurance until ownership changes hands. “It’s not a pure walk away,” Western-Macfadyen warns. If the sale incurs a loss, homeowners are liable for covering the shortfalls.
Hence, life post-sale poses a pressing question: “Then what?” Homeowners face reentering the housing market amidst escalating interest rates, soaring rent prices, and a general affordability crisis. She opined, “Anyone who is going to be renewing in the next year or two is definitely going to feel this pinch.”
