The tough conversations used to happen at the kitchen table. Now they take place over text or email. And they often get pushed back until it’s absolutely necessary to have them… Or they are ignored completely.
Today, it’s becoming absolutely necessary to have the hard talk, uncomfortable and tough conversations.
Lately, more and more households are having tough conversations about money.
Inflation has a lot to do with that, and it’s outpacing increases in household income. Take groceries as an example. A quick google search showed:
$10 for a pack of sliced cheese.
$17.07 for 500 grams of steak.
$9.25 for a couple chicken breasts.
$2 per roll of toilet paper.
And over $12 for a small container of hair care product!
I ran to the store the other day for a 2L of pop, a pound of coffee, a litre of milk, and a loaf of bread. My bill came to $35.78!!
Groceries are one thing, but what about everything else?
Gas… Utilities… Rising costs for gym memberships, daycare, and field trip fees… Everything from home insurance to hot water to handbags is rising in cost.
That “everything” also includes interest rates on borrowed money!
In my conversations with families, I’m hearing them say that they are “just” getting by. They are cutting costs wherever they can.
Less restaurant visits.
Car pooling and public transit.
Not enrolling the kids in activities.
Some of the cuts are healthy, some of them are a detriment. The reality is that your after tax dollar does not go as far as it used to.
Here’s why I’m raising the issue (and it’s not because tough conversations are fun - frankly I’ve had more of them lately than I want to).
If you bought a home in the last 3-5 years, your mortgage might be expiring soon. (If you refinanced in that period, you might also be coming up to the end of your term.) Likely, you locked in an interest rate of around 2%.
Interestingly, that’s the same period of time where we saw stress tests become the norm. The stress test meant that you had to qualify for your mortgage at an interest rate 2.5% higher than you actually were going to pay.
The stress test is a safeguard. Both for the lenders who wanted to ensure that if the economy swung you would still be in a position to make your payments. And for homeowners because so many people owed more than their house was worth. You may or may not have been in the market when banks didn’t require a down payment to get a mortgage… but suffice it to say that no equity + a market drop = people in financial turmoil.
Lets pause here to say - its always best to speak with a mortgage broker, lender or financial planner to get the numbers and advice specific to your situation. We HIGHLY recommend that and can connect you with experts if you need them. Mortgages continue to change and we lean on our mortgage brokers heavily for their expertise.
Continuing on though - what has happened, post-covid?
The Bank of Canada has raised interest rates 8 TIMES IN A ROW! That’s unheard of in recent memory.
And we’ve seen high numbers of lay-offs, hour cutbacks, and changed careers. Changed careers which are often for the same or lower wages (though sometimes with better flexibility and quality of life).
So what does that mean if your mortgage is coming up for renewal? (Stick with me if you’re not a math person)
This is the tough conversation part, so pull up a chair at the kitchen table. Interest rates around 2% are long gone. And the 4.5% (let’s use that for easy numbers) that you qualified with isn’t on the table anymore either. As of writing this, the basic interest rate in Canada is around 4.65%. With the stress test, you have to re-qualify, to live in your house, at an interest rate over 7%.
If you can:
afford the increased mortgage payments work with your current income and debt.
if the bank thinks you can make the payments work even if actual mortgage rates go up to over 7%
… well, you should be fine.
What if you can’t??? Frankly, there are many people where the numbers just won’t work. And more that will find that the new mortgage payments take them beyond their comfort zone.
I’ve worked with a lot of clients in this situation and we’ve put together a plan to right size their lifestyle. This may be as simple as refinancing your mortgage through a different lender or looking at alternative options for lending. But it may also look like selling their house and finding a home in a nearby neighbourhood where the dollars work. This keeps the kids in the same school and in sports. Or it allows for a family vacation and date nights. A home is just one part of life. My clients tell me that the house doesn’t outweigh being able to create memories or experiencing financial peace.
I wish everyone had a way-back time machine like Mr. Peabody had in the 70’s. But that’s not the case, so we can only move forward with the lessons we’ve learned, and with the right advice.
Let’s do our level best to make the most out of your current situation especially if times are tough, or if life has thrown you a curve ball or two. Wherever you are - and even if you’re not sure where you are - in the big picture of money and real estate - I’m here . I’d love nothing more than to sit at the kitchen table with you and make sure you have all the info you need. You may be surprised at the options that are available to you.
Lets get out in front of the tough conversations so they’re not so hard. Send me a note and we’ll find a time to talk.
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