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Homeowners on the brink face tough choice of selling home as mortgage payments climb



As mortgage renewals loom with unexpectedly higher interest rates, an increasing number of Canadian homeowners find themselves grappling with the harsh reality of potential financial strain, contemplating the unsettling prospect of selling their homes. In the face of this daunting challenge, financial experts urge homeowners to explore alternative solutions before resorting to putting a "For Sale" sign on their front lawn.


Becky Western-Macfadyen, a financial coaching manager with Credit Canada, acknowledges that selling the house may be the ultimate option for some homeowners, but she emphasizes the importance of considering alternative measures first. One crucial step involves reevaluating family spending, scrutinizing both income and expenses, including everyday costs like household maintenance, car repairs, and medical bills.


To diversify income sources, homeowners are advised to explore possibilities such as taking on a second job, negotiating a raise at work, or renting out a room in their homes. However, Western-Macfadyen emphasizes the need for realistic expectations, cautioning against minor adjustments and urging homeowners to make significant, sustainable changes.


Tony Salgado, founder of AMS Wealth, suggests that homeowners allocate any available funds to make a lump-sum payment toward their current mortgage before facing a potentially higher rate upon renewal. Seeking guidance from financial advisers or certified financial planners can help determine an affordable yet sustainable lifestyle.


As the mortgage renewal approaches, Salgado advises against accepting the first offer presented by a lender, recommending homeowners to shop around, as even a one or half-percent savings can be valuable in the current economic environment. Considering factors such as mortgage amortization, choosing between fixed and variable rates, and finding the best rate offer can help alleviate the burden of higher rates upon renewal.


Despite popular belief, Salgado highlights that the surge in mortgage rates affects homeowners across income brackets. While those with higher incomes may have more flexibility to adjust to increased borrowing costs, lower-income homeowners may face greater challenges.


Some younger homeowners are seeking assistance from their parents to meet rising mortgage payments, turning to an advance on their expected inheritance. However, if all options are exhausted, selling the property becomes a last resort.


Western-Macfadyen advises homeowners to consider selling rather than facing foreclosure to avoid selling the property below market value. Seeking advice from a licensed insolvency trustee may help manage debts and alleviate the stress of selling the house.


Nevertheless, selling the property does not absolve homeowners of responsibilities, as they must cover leftover utility expenses and house insurance until ownership is transferred. If the house sells at a loss, homeowners are accountable for the difference, potentially requiring adjustments in other investments or exploring options such as consumer proposals or bankruptcy.


As homeowners confront the reality of selling their homes, they must grapple with the challenges of re-entering the housing market amid higher interest rates, soaring rental prices, and an overall affordability crisis. Western-Macfadyen warns that the belief in rates falling again might not materialize for years, leaving those renewing in the next year or two to feel the financial pinch.


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