Happy Summer 2022
I am happy to report my mental health is about to get better. While you are reading this informative newsletter, please read to the bottom, and I hope you enjoy it, I will be on holiday.
Way back in 2019 I booked a Viking cruise for Klaus’s 60th birthday. needless to say, we didn’t go. But, now we are about to set sail. I am looking forward to an adventure. I will tell you all about it on my return. Don’t worry, Walter will be having fun at his favourite kennel and Tibor Schulz will be watching over the business making sure everything is taken care of. I am leaving you in more than capable hands. Have a terrific Canada Day and Summer.
Breath in – Breath deeply – Slowly exhale, repeat. We are going to be ok.
We are worried about the uncertainty of our future; we just came out the other side of the pandemic, and now…. The past several weeks have caused some people, including myself, to become stressed on many levels and apprehensive about our financial future. The headlines are dramatic and fear-provoking. Our investments and savings are shrinking. Gas prices, and the cost of the food we put on the table, are increasing; when does it end? Common! She says, kicking the ground in a temper tantrum. Not quite, but that’s how it feels some days when I see the price of the crackers I love. And then I remember, all that I have, and that this is just a moment in time and this too shall pass. Breath in, Breath deep, slowly exhale.
I once watched an episode of Oprah, and there was a lady on, name unknown to me, and she was talking about what will this (whatever the issue at hand is) mean in time.
What will _____ mean 15 minutes from now?
What will _____ mean two weeks from now?
What will _____ mean two years from now?
These statements resonated with me and stayed with me. Why and how do I react at the moment ______ is occurring. The measurement of time in the statements does not matter; it only shows you what it will mean if you scrutinize the situation with different values of time. Ten years from now, we’ll still be talking about the pandemic, but not with the same against that we do today.
Hmmm. How often have you told a friend that time heals all wounds? Or Give it a little time. Time is a beautiful thing; remember to breathe. Take it one day at a time, and most importantly, take stock of what is essential in your budget.
Most of my clients know that the variable rate mortgage is a strategy they subscribe to, but sometimes we forget. Someone will call and ask, “At what point do I lock in my mortgage?” My answer is I don’t know. But, here is what I do know for me;
- Stick to the strategy I planned for my mortgage – remind myself of the strategy – a Tale of Two Amortization schedules.
- Budget my mortgage payment at the fixed-rate or the stress test rate of 5.25% – not the actual payment.
- Remember that more of my payment goes towards the principal with a variable rate mortgage.
- Remembering I can make up a payment – I do not need the “bank” to structure payment for me (as long as I’m within the guidelines)
- Make sure I am paying accelerated bi-weekly – to ensure I pay my mortgage down more quickly and efficiently – two extra payments a year go towards my principal, cutting years off my mortgage.
- Increase my payments to be as close to the Stress Test or the fixed rate – with the difference going to my principal balance – see making up my payment guidelines.
- I will continue to remind myself that this is a difficult time in the world, times are changing, and it’s going to be bumpy for the next 18 months – this too shall pass.
- Increase my payment annually when possible – remember, most mortgages allow you to increase your payments once a year – anywhere from 10-20%
- Making a drastic change out of fear does not fit with the financial strategy I set out for myself.
As I tell you this, I tell this to myself. When you are surrounded by loud scary media noise, threatening your mortgage payment is going up by 400%, you lose all of your principal to interest and undermining the logical decision you made when choosing your mortgage. The media is chock full of uncertainty and panic, but you can make better decisions when you breathe and look at the math.
Now, no worries if you choose to lock in your mortgage; everyone has different trigger points. I can help without judgment. We all have to do what’s best for ourselves.
BUT WAIT, I have a FIXED rate mortgage. None of this affects me. WRONG! Yes, yes, it does.
People with low-rate mortgages need to pay attention now and move forward – you need to start increasing your monthly mortgage payment or just practice.
What I mean is that when the fixed-rate mortgages come up for renewal, the interest rates will be in the 5%+ area, meaning the variable clients will be accustomed to the new rate scene, and you won’t be.
Fixed-rate clients will be in for a massive payment shock. So I suggest that you start acting like your payment is already at 5.25% and start budgeting and putting money aside as if your payment was already at 5.25% so that when the time comes, the increase will not hurt as much. Plus, whatever extra you set aside in the mortgage bank account from budgeting, the higher amount can go towards a lump sum payment towards your principal.
For example, if your existing payment is $300 every two weeks, start putting aside $325.00 every two weeks for a few months, then increase it to $350.00 and so so on until you reach what the payment will be at 5.25%. If you continue to budget at 5.25%, the extra funds in your bank account can go towards a lump sum payment bringing down the principal at maturity. BAM.
Now, wait. Hey, Jacquie, I can’t afford this. I’m not made of money. I can’t go from 1.89% to 5.25%. That’s crazy. YES, YES, you can and here’s why YOU HAVE NO CHOICE. That’s what the rates will look like, what they do look like now. You might as well get used to it sooner rather than later. AND you qualified at 5.25% for the mortgage application, so I know you can afford it. 🙂
I’m not saying it will be easy; it will be challenging, but you can do it. Get creative. We are so used to having it cheap and easy-ish. Now we have to get creative and stretch our imaginations. I plan on hosting more at home, potluck and game night; wanna come over? Whatcha bringing?
Here is a calculator to determine what your payment would be at 5.25%
- Use 25 years for the amortization to get you started
- Use your original mortgage amount – or a close estimate
- Use 5.25% for the rate
Have fun, and play around a bit. 🙂
I am here to help when you need me.
Well, friends, we have a water baby. Walter started to like the water last summer, but it was limited to fetching things I threw into the water, balls, Frisby’s, sticks and, yes, rocks. But this weekend, this fine dog decided to swim alone, just hanging out in the lake. I walked on the path, and he followed alongside me in the water; Walter loves the water.
The Stress Test
The stress test when qualifying for a mortgage is getting more and more stressful. The stress test is used to ensure consumers can afford increases to their mortgages. Currently, the stress test for a variable rate or adjustable-rate mortgage is 5.25%. Fixed-rate mortgages are the contract rate plus 2%. This means if you have a purchase with a 10% down payment your stress test measurement would be the contract rate, 5%+2% = a stress text of 7%. Well, you can imagine how this will impact affordability. It will lower the amount you can qualify for, which has some people unwillingly taking a variable rate mortgage. This is fine if you know how to live with a variable/adjustable-rate mortgage. As you know variable/adjustable-rate mortgages are my favourite, but it should be a choice, not a must-do.
Mark Carney says global recession risk is ‘uncomfortably high,’ but Canada likely to fare better than most other countries
My very favourite Governor of the Bank of Canada. Ah, I miss the Carney.
Read in The Globe and Mail
Hold on to your seats:
The next Bank of Canada meeting is July 13/2022
High Ratio Mortgages – default insured
5 year: 5.04%
10 year: 4.94%
Prime 3.70% – 0.85% = 2.85%
Conventional Mortgages – 20% down or greater
5 year: .5.29%
10 year: 5.09%
Prime 3.70% – 0.60% = 3.10%
5 year: 5.39%
Prime 3.70% – 0.30% = 3.40%
Rates are subject to change at any time, these rates should be considered a guideline.