Higher Mortgage Rates: Should You Sell or Keep your Home?
In short
You have three options when renewing your mortgage:
Refinance your mortgage
While this solution may initially appear attractive, it involves paying more interest over the long term since your repayment period will be extended. You must fully understand the terms and conditions before making such a decision.
Sell your property
If your debts are piling up every month and you’re having difficulty making your payments, selling your home and renting instead could allow you to start over.
File a consumer proposal
This alternative to bankruptcy allows you to settle your debts and also keep your home.
If you’re a property owner, you’re probably worried about renewing your mortgage. Indeed, even though interest rates have dropped slightly, they remain higher than in 2020. According to La Presse, over a million mortgages will be renewed at higher interest rates in 2025 (article in French only).
Combined with the rising cost of living, this increase will evidently impact your personal or family budget. You may be under increasing financial pressure and may have even accumulated debt. So what should you do? Is selling your home worth it?
Does this sound familiar? Here are a few tips.
What is equity?
Let’s begin by reviewing what equity is. Equity is the balance that you would receive after selling your home and paying off your mortgage. For example:
- Your home is worth $400,000 on the market;
- You have an outstanding balance of $350,000 on your mortgage;
- Your equity would therefore be $50,000 ($400,000 minus $350,000).
What are your options?
As a homeowner, you have several options when renewing your mortgage.
- Refinance your mortgage
Refinancing your mortgage often involves extending the term of the loan, which is an interesting solution since it reduces your monthly payments. However, you’ll pay more interest over the long term. You should therefore ensure you understand the terms and conditions before refinancing. - Sell your property
Selling your home may be a sound decision if you want to avoid accumulating debt. Ask yourself if any of these three situations applies to you:- Your payments are becoming unmanageable over the long term and you can’t envisage a sustainable solution to restore your financial balance;
- You have to constantly dip into your savings or take on more debt to cover your monthly payments;
- Based on what you’ve seen on the market, you could sell your home for a good price and find new housing at a lower cost. However, you should bear in mind that the rental market has also become increasingly expensive. Do some research before making a decision!
If you realize that one of the situations above applies to you, selling your home may be the best solution.
- File a consumer proposal
If you’ve accumulated a lot of debt, this process is an excellent alternative to bankruptcy.
It allows you to settle your debts and also keep your home. However, you must pay your monthly mortgage payments in addition to those arising from your payment agreement.
In a nutshell, you must explore every possible avenue before making a decision. One of our Insolvency Counsellors can help you get a clearer picture and avoid costly errors. Naturally, your home is an important asset and we realize it also has sentimental value. However, it’s best to avoid getting deeper into debt rather than keeping your home at all costs.
Meet with one of our counsellors for free
Don’t ignore a debt problem that’s ruining your life. Let’s work together to help you regain control of your finances.
