What if you can’t pay your mortgage?

Those with mortgage loans and variable rate loans with fixed repayments are affected.

• Also Read: Taking out a seller’s mortgage, a good idea?

• Also Read: Is paying off your mortgage better than investing?

After successive increases in the interest rate, the monthly installments of these loans do not cover the interest, but in addition, they have to repay a portion of the capital borrowed. This tipping point is called the trigger rate. Financial institutions approach borrowers to resolve the situation. what to do

Don’t worry! There are many options to help you when the storm calms. Here are some.

Extend the amortization period

A longer amortization period makes it possible to lower monthly payments. For example, for a $200,000 loan with a 5-year term at a 6% interest rate and a 15-year remaining amortization, the monthly payments would be $1679. By extending the amortization to 25 years, they come down to $1279. A difference of $4800 per year.

However, in the long run, you will pay more interest. But once the situation returns to normal, you will have an opportunity to adjust the amortization during the next renewal.

If your loan is already amortized over 25 years, note that not all financial institutions will agree to extend it to 30 years, extend it further.

Choose a fixed rate

Alternatively, opt for a fixed rate instead of a variable rate. We all know that a variable rate is beneficial in the long run. However, maybe you should consider giving it up for a while. Again, you can review the situation in the next recovery. Until then, a fixed rate gives you some security.

Choose a variable rate and reimbursement

By not limiting your repayment, you will be able to absorb interest rate fluctuations. Variable rate fans choose this option. Empirical evidence on the benefits of variable rates backs them up.

Make an advance payment

Generally, financial institutions pre-determine the framework that you can repay in advance in the mortgage deed. This reduces the borrowed capital.

For example, for a $200,000 loan amortized over 25 years and 6% for a 5-year term, after two years, on 24^e Paying monthly, you accelerate repayment by adding $200 per month over the last three years of the term. So when it’s over, you’ll save $697 in interest.

Another chance, from 24^e Monthly Payment You add a lump sum payment of $5,000 per year to the monthly payment. At the end of the term, you will have saved $1902.

In conclusion

We are currently experiencing a turbulent period with respect to interest rates, which is forcing us to review some priorities. In such situations, it is better to stay calm and not make hasty decisions. Start by analyzing your situation with a clear head. What are your short-term plans? Can you defer some expenses? Financial planning helps you find solutions.

advice

• Stay active! Submit your suitable proposal to the financial institution. A reasonable offer is likely to be accepted.
• Ask a loved one to help you through this difficult time.
• Consult a financial advisor who can help you with your financial planning. In financial institutions, it is free.