With Your Mortgage: Now Do The Opposite

Since 80% of homeowners have a five-year fixed mortgage, millions of people have a mortgage renewal to deal with this years.

With rates at their highest point since the 1980s and likely a couple more rate hikes coming early this year, that’s a nightmare about to hit them. If you’re one of them, as I was last year, don’t just shrug your shoulders and sign up for another five-year term before doing some thinking and research. Yes, spend a few days thinking this through – just make sure you never do anything because you read me suggest it – or the suggestion from anyone else without doing your own due diligence!

Remember last year when gas prices were at insane levels? Our brains are wired to think that that’ll be the case forever. Remember looking at any of your investment statements in the last year? You’d have been better off to never open the envelopes. But, if you did, it was down, down, down and your brain thought it’ll be down forever and (hopefully not) to just get out and put the money under your mattress.

Today, gas prices are back down and in 2023 and next year, your investments will also come back. What stays down (or up) doesn’t stay there forever. So don’t get depressed or in that “what’s the use” mindset and just sign another five-year mortgage term.

My thinking, and what I did, might be a good starting point for you to consider another mortgage term this time around: As we discussed in a story last year, I was able to do an early renewal. Yes, it was a two percent higher rate, but avoided the last three (and coming two plus) rate increases.

Variable rate: That’s only a good deal when rates are at their max and heading down. That way, each month, your mortgage rate will be reduced with decreases in the prime rate. But that’s not today.

One year term: That made no sense to me to have to renew again when rates will have barely peaked. I wanted/needed a little more time for rates to finish rising, stabilize for some time, and start to come down.

Two year term: That would be 2025. Maybe that would have made sense, but when the rate fever breaks, it’ll take a bit for the inflation to ease – meaning a period of stable rates before a rate drop happens to again re-boost the economy. Two years didn’t seen long enough for me to be able to be on the sidelines.

Three year term: That, to my way of thinking was the perfect timeframe for all that to happen and already be pretty much assured rates will be down. Down all the way? No idea? Still rising? No chance the Bank of Canada will not have inflation beaten down and the economy back on track. In my view and action, three years made the most sense right now.

That doesn’t mean I’m not still massively jealous of a neighbour with a 1.8% rate for four more years…but I can’t live for a better past. I can just deal with the reality of today…

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