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Will You Cope When you Refinance?

Will You Cope When you Refinance?

Money Mentalist Lynda Moore explores ways in which to take the sting out of rising interest rates.

10 April 2023

In recent years, many people have taken advantage of historically low mortgage rates to purchase homes or refinance existing mortgages. However, as interest rates rise, those who have become accustomed to low monthly mortgage payments may find themselves struggling to make ends meet. This is especially true for those who were not stress tested at higher interest rates when they first applied for their mortgage.

The stress test is a measure put in place by lenders to ensure that borrowers can still make their mortgage payments in the event that interest rates rise. In the past, stress tests were typically set at 4-5%, but in recent years they have been raised to 7%, reflecting the potential for interest rates to rise significantly in the future.

Unfortunately, many borrowers have not made the necessary money mindset changes to live within a budget that can accommodate these higher interest rates as they become a reality.

But don’t worry – I have got you covered! Here are five steps you can take to make the changes needed to keep within your money plan and meet your mortgage payments:

• Create a money plan

The first step in managing your mortgage payments is to create a money plan. This means taking a hard look at your income and expenses and figuring out how much you can realistically afford to spend on housing each month. Use a budgeting app or spreadsheet to keep track of your expenses and make sure you are living within your means. It can be confronting, but is worth it to know you’re on top of your payments.

• Cut back on expenses

Once you have created a money plan, look for areas where you can cut back on expenses. This may mean eating out less, canceling subscriptions or memberships you don’t really use anymore, or finding ways to reduce your utility bills (when did you last check to see if you are on the best deals?). Remember, every dollar you save can help you meet your mortgage payments.

• Build an emergency fund

Having an emergency fund can provide a safety net in the event that you experience a financial setback. This can be especially important when you are facing higher mortgage payments. Start small by setting aside a little bit of money each month and gradually build up your emergency fund over time.

• Consider refinancing

If you are struggling to make your mortgage payments, refinancing may be an option. This can help lower your monthly payments by securing a lower interest rate or extending the term of your mortgage. Keep in mind that refinancing comes with its own costs, so be sure to weigh the pros and cons before making a decision.

• Seek professional help

If you are having difficulty managing your mortgage payments, don’t be afraid to seek professional help. A financial advisor or money mentalist (like ME!) can help you develop a plan to get back on track and stay within your money plan. They may also be able to negotiate with your lender to help you secure more favourable terms on your mortgage.

In conclusion, rising mortgage rates can be a challenge for borrowers who have become accustomed to low monthly payments. However, with the right mindset and tools, it is possible to manage your mortgage payments and stay within your money plan.

Reach out to me if you need help with any of these points by booking a call here https://moneymentalist.com/bookings/

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