Few anticipated what happened to mortgage rates and the real estate market in 2022. We did expect rates to rise, but going from an overnight rate of 0.25% to 4.25% caught us off guard and at times took our breath away! Inflation soared and the Bank of Canada determined throughout the year that much higher rates were necessary to get back to the 2% inflation target.
Heading into 2023, there are so many questions we’d like answered – how high will rates ultimately go, when will they come back down, how do you renew at today’s rates, can you really qualify for a mortgage at such a tough stress test, is debt consolidation still possible, what’s the outlook for house prices, and could we be in for a really deep recession?
The uncertainty of not knowing how 2023 will unfold may cause you anxiety and stress. Often though it’s putting sensible strategies to work that can help you survive and thrive in the toughest years. Here are my top strategies for 2023, starting with it’s time to tighten our belts!
Spend less
With economists predicting we will go into a recession, it’s important to look inward and plan to spend less, especially since recessionary times bring job losses. Eight simple tips –
- Set a budget and do a menu plan. If you stick with it, you won’t overspend.
- Work hard to minimize food waste or in other words – eat what you buy.
- Don’t spend more to save money. Even with that sale price or two for one offer, it still may not be needed.
- Research how best to collect and use loyalty points.
- Go through credit card and banking statements and cancel subscriptions you don’t use.
- Get quotes to see if you can get a better deal on regular expenses like insurance and your internet cost.
- Postpone large purchases as much as you can.
- Consider buying second hand or refurbished.
Earn more
There are several ways you can look to earn a bit more to get some extra cash flow.
- Start a side business or upgrade your skills to boost your income.
- Sell those items that you no longer use or need.
- With tax season approaching, make sure you can claim all the deductions you are eligible for. For instance, if you bought your first home in 2022, you may be able to take advantage of the first-time buyer’s tax credit that could give you up to $750.
- Think about downsizing, whether that is your home or car. If you are looking at downsizing your home, I can help you review your options.
Be sure to polish your resume so you can act on a fantastic career opportunity should one arise, and you’ll be ready in the unfortunate situation you unexpectedly lose your job.
Take advantage of being in a buyer’s market, but get a pre-approval first
I expect there to be a nice window of opportunity for buyers in 2023 given continued softening of house prices. With our high immigration numbers and a tight housing supply, this won’t last forever. Being in a buyer’s market means that conditions favour you the homebuyer:
- lower housing prices require a smaller downpayment,
- you can now take your time to look around and do price comparisons,
- when you find a home, you’ll have the time you need to negotiate and you can put important conditions in your offer like financing and home inspection and,
- with more houses now valued under $1 million, you can get into a home with a downpayment of 5% on the first $500,000 and 10% on the remainder, instead of the 20% required for homes valued $1 million or more. You can also qualify for a lower rate insured mortgage.
I look forward to helping you take advantage of this opportunity in Brampton, Toronto or the GTA.
Before you do go house hunting, remember that a preapproval is important for most mortgage shoppers. It will tell you how much you qualify for, what your mortgage payments will be, and you’ll get an interest rate that will be held for up to 120 days so you are protected should rates rise. You also won’t fall in love with a home you can’t afford, especially since living within our means will be so important in 2023 and 2024.
Consider ways to consolidate debt without refinancing
Facing holiday debt in January is always a big concern for many Canadians. In years past, a mortgage refinance was a great answer, allowing for high-rate debt to be moved to a new lower rate mortgage. However, right now it often doesn’t make sense to get out of a low-rate mortgage and qualifying at the stress test has become a difficult hurdle, which is required for a refinance. If refinancing doesn’t make sense, we can look at other options, like a second mortgage where rates are much lower than credit cards, and a HELOC that requires interest-only payments. If high non-mortgage debt is a concern, get in touch for a review of your situation and the options available to you. This is important because the right strategy can give you necessary breathing room and put you on the right financial path.
Get in touch early to talk about your renewal
Renewing at higher rates can be quite the financial shock. If you have a renewal coming up in 2023, don’t be too quick to just sign the renewal form and return it to your current lender, especially if your lender is encouraging you to go with a 5-year fixed rate. If you do, you won’t know if there is a better deal available in the marketplace, one that can save you money and improve your financial situation over the long run. And a 5-year fixed is likely not in your best interests given we expect rates to be lower in 5 years. Depending on your situation you may want to consider going variable or a shorter fixed term like 1-3 years.
Put money against your mortgage principal
Reducing your mortgage principal, even just a small amount, is one of the best protective strategies during a rising rate environment. If you have a static payment variable mortgage, then you may have already increased your mortgage payment and/or put a lump sum payment down. An easy strategy is to switch from monthly payments to accelerated weekly or accelerated bi-weekly payments. With accelerated payments, you essentially make one extra payment a year. If you expect a tax refund this spring, try to take that refund and put it against your mortgage principal.
Act quickly if you are finding it difficult to make your mortgage payments
If you find yourself in this situation, the most important thing is to contact your lender as soon as possible. Your lender and mortgage insurer have options that can help deal with a difficult period because they don’t want to see you default on your mortgage. These include a temporary payment deferral, extending your amortization, or a special payment arrangement.
Take care of your credit
Your credit score is important to monitor if you have an upcoming mortgage need because it will tell you how you’ll be viewed by lenders. The good thing is that your score is very much within your control. Make sure you have good credit behaviours to help ensure you can qualify for the best mortgage rate. Be sure to pay your bills on time (this is essential!). Don’t let your credit accounts exceed 30% of the credit available. Before you cancel any credit cards, get advice because that card’s history could be particularly important. And don’t apply for a store card just to save on your purchase that day!
Try to build an emergency fund
You want to try to not rely on credit cards to get you through a financial emergency, like when your car needs new brakes or an appliances quits. Make a point of setting aside a small sum every paycheque into a special emergency fund. If you have trouble saving even a little amount, create a budget and stick to it as best you can. Having a budget will give you a clearer picture of where you stand and how much you can truly spend. If you need to stop your contributions to RRSPs and/or RESPs, that’s okay. You can pick that up later.
And finally, get advice from an experienced professional, someone who has dealt with this type of economic environment before. If you are in Brampton, Toronto or the GTA, I have the expertise to review your situation and provide you with a customized plan for surviving and thriving in 2023. Let’s talk, I’m here to help!
