When Variable Rate Mortgages are as Popular as Kale in a Salad

By: Lindsay Smith

When Variable Rate Mortgages are as Popular as Kale in a Salad


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My variable rate mortgage has increased so high I am having difficulties managing the payment.
Are you here… meaning, are you dealing with a variable rate mortgage where your payment has skyrocketed?

If you have a $400,000 variable rate mortgage, a year ago the rate would have been about 1.45%. The monthly payment is around $1,987. This for many families is a manageable monthly payment. However, as 2022 saw mortgage rates increase 7 times, by December/22 that same mortgage rate increased to 6.25%. The new payment at 6.25% has jumped to $3,274/month! I do not know many families who would not be gasping if their payment increased by about $1,300/month. Another rub is how currently the 5-year fixed-rate mortgages which have always been dramatically higher than Variable mortgage rates are lower. A 5-year fixed mortgage currently is 5.2%.

If you find yourself in a mortgage and the monthly payment has been increasing here is an option that might help.

Let’s assume that you have some accumulated debt, a mortgage, a credit card and a car loan and the payments have been getting more than you can manage. Your mortgage is $400,000 with a monthly payment of $2,700 at 3%, your credit card has a balance of $15,000 with a $450/mth payment and lastly, you have a car loan for $40,000 which costs $700/month to carry. In total you have $455,000 in debt with a monthly total payment of $3,850. Here is an option that may make your payments drop along with your stress level.

By chatting with a Mortgage Broker one of the solutions would be to consolidate all of your debt into one payment. This would mean increasing your mortgage to include the credit card and car loan. What happens when you do a consolidation like this is it reduces your mortgage payment to an amount dramatically lower than the 3 debts added together.

The new mortgage would be $455,000 and would be calculated at the current 5-year mortgage rate of 5.2%. Here is what the payment options look like when you take into account the different lengths of mortgage options – note that the monthly payment prior to the consolidation is $3,850/mth.
$455,000 mortgage with a 30-year amortization $2,482/mth. (a savings of $1,368 monthly)
$455,000 mortgage with a 25-year amortization $2,698/mth. (a savings of $1,152 monthly)
$455,000 mortgage with a 20-year amortization $3,039/mth. (a savings of $811 monthly)

The upside is your monthly payment can be reduced by as much as $1,368, however, the cost is that your mortgage length has increased from what it is currently to between 20 – 30 years pushing the date of paying it off into the future.

Debt consolidation in the past has been seen as a less than attractive option, however, if a homeowner finds themselves in a situation where they are either stressed to pay their monthly bills or not able to make them, this becomes a very logical option.

There is no shame in doing a “financing reset” that leaves you and your family with breathing room monthly as we go through a very challenging time. In the USA, back in 2008 the Real Estate market crashed and many homeowners lost their homes back to the banks that held their mortgages. I live and work with Wendy Starr who sold real estate in Phoenix during this time, and she mentioned that many homeowners did not take steps to deal with their mortgage payments and ultimately were foreclosed on and had their homes taken from them by their bank. Taking a few steps backward may help you in the future.

One way of doing consolidation and helping your future financial net worth would be to lengthen your mortgage to a 30-year amortization and increase your monthly payment. By increasing your payment $218/month above the basic minimum payment, (to $2,800/mth) over the 5-year term you will have paid an additional $22,000 off of your principal. This means that when your mortgage renews you have shortened the amortization down lessening the impact of refinancing.

Taking control of your situation requires being honest about where you are financially and by engaging a mortgage professional to help guide you through the process. When your mortgage renews in 5 years, hopefully the rates will be lower, and you will be on your way to financial security.

On a side note, as a part-time chef, Kale is never an option, no matter how expensive other salad greens become. Kidding not kidding.

In the event you are having financial difficulties, I can be reached at lindsay@buyselllove.ca I have access to many mortgage professionals who would be willing to help you with your situation.

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