Homeowners across Canada are feeling the pinch of increasing interest rates, causing our monthly mortgage payments to jump. A mortgage is typically the largest debt most homeowners have, and managing it can be a considerable financial challenge. However, there are effective methods available to reduce your monthly payments, giving your budget more breathing room. In this article, we’ll explore 4 creative ways on how to reduce mortgage payments.
The 6 Best Ways To Reduce Mortgage Payments
1. Refinance Your Mortgage
Refinancing is one of the most common strategies for reducing mortgage payments. It involves securing a new mortgage to replace your current one, ideally at a lower interest rate. A lower rate can dramatically reduce your monthly payments and save you a significant amount of money over the life of your mortgage. With a refinance you could also obtain some equity out of the home to pay down other debts you may have (such as credit cards, car loans, etc.) to help reduce your monthly debt obligations.
However, be mindful of the potential costs involved in refinancing, such as prepayment penalties and administrative fees. Contact Alex Lavender to get access to more lenders to make your refinancing process easier.
2. Make a Lump Sum Prepayment
If you’ve received a large sum of money, such as a bonus, tax return, or inheritance, consider making a lump-sum prepayment towards your mortgage. In Canada, many mortgage agreements allow for an annual prepayment of up to 20% of the principal. This strategy reduces the outstanding principal, thus lowering your monthly payments and the total interest you pay over the life of the mortgage.
3. Extend Your Amortization Period
By extending the amortization period (the length of time you have to repay the mortgage), you can reduce your monthly payments. For example, switching from a 20-year to a 30-year amortization period would result in lower payments. However, this method could mean you’ll pay more interest over the life of the mortgage. It’s crucial to evaluate the long-term implications of this decision.
4. Use a Mortgage Broker at Your Renewal
Using a mortgage broker at renewal gives you access to a variety of lenders with one easy application. That means more mortgage options to choose from, including lenders with more favourable terms and lower payments. Monolenders, for example, can only be accessed through a mortgage broker. If you have only ever dealt with the big banks, a broker can show you all the options available to you before you sign your renewal.
5. Pull Out Equity Into an Offset Account
If you do not have other high-interest debts but foresee struggling with rising mortgage payments, you may be able to refinance and place the withdrawn funds into a separate high-interest savings account. This gives you a pool of cash to draw on if your payments increase beyond what you can comfortably manage. Talk to your mortgage broker to see whether this option fits your situation.
6. Rent Out a Portion of Your Home
If you have extra space, consider renting it out. This could be a basement apartment, a spare room, or even your entire house if you’re away for extended periods. The rental income can be applied directly to your mortgage, significantly reducing the financial commitments you have with your mortgage.
Be sure to check local regulations, or with your accountant to consider the impacts on your home insurance and taxes. Halifax, Nova Scotia just implemented an Air Bnb registration, which is causing a shortage of Air Bnb’s in the city. However this allows homeowners to use your primary residence as an Air Bnb to supplement your monthly mortgage payments.
There are various creative ways to reduce your mortgage payments, but each comes with its pros and cons. It’s essential to consider your financial situation, goals, and risk tolerance before making a decision. If you’re unsure, consult a professional.
A mortgage broker like Alex Lavender can guide you through your options and help you choose the strategy that best suits your needs. By being proactive and strategic about your mortgage, so you can enjoy more financial freedom and peace of mind.
Contact Alex Lavender today!
