The best strategies when the high cost of living affects your mortgage payments

When the cost of living affects your mortgage and HELOC payments, take steps to identify options and solutions.

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Q: We upsized our home during the pandemic, taking advantage of the low interest rates. While we didn’t max out our mortgage, when we did some renovations and built a suite above the garage, we did max out our home equity line of credit. Thankfully we took out a five-year fixed rate mortgage, so we don’t need to worry about our mortgage payment increasing for another few years. But the high cost of living is making it a struggle to make our line of credit payments and afford all of our other bills. What can we do? ~Tanya

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A: Many Canadians took advantage of the low interest rates during the pandemic. Some took on new mortgages at near-historically low interest rates for both fixed and variable rate loans. Home equity line of credit (HELOC) applications and usage hit record numbers, and while credit card use declined at the start of the pandemic, by the end of 2021 it was higher than ever. Needless to say, our altered financial habits, along with factors beyond our control, can make managing our money challenging right now.

However there are strategies to make it easier to get by. Here are some tips to get you started:

Talk to your mortgage lender

It can be tempting to avoid speaking with your lender, but the best time to do that is before you fall behind with payments. They have more ability to help someone when a mortgage and HELOC are paid up to date. Options that could be available to you will depend on how the loans were structured at the time you applied.

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For instance, your lender could look at extending your amortization to bring down your payments. There might be wiggle room to set your payment lower or to change your payment frequency. Aligning your payments with when you receive your income and balancing them out with other obligations won’t decrease how much you pay, but can make it easier to stay up to date.

Depending on your overall situation, there could be payment deferral or hardship options available. Your lender can explain those options to you if you qualify, but be sure you understand what you are agreeing to before making any changes. Deferred payments will still need to be made at some point; deferring means postponing, not erasing. It will help to consider any such options within the scope of your overall situation, not just with your mortgage and HELOC payments because deferred payments and/or interest will likely increase your payments slightly when the deferral period ends.

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Create an updated budget

When you’re struggling to make ends meet it can be difficult to look at your situation objectively. However, at times like this your budget must be your guide. Create a realistic household budget based on your current circumstances. If you aren’t sure where you stand, track your discretionary spending for the next two weeks.

During this time, look over all of your regular bills to see which ones can be decreased or eliminated. While you might not look forward to spending two weeks working on your finances, by setting a goal to focus on doing that for a limited period of time, the end in sight can be very motivational.

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Maximize your mortgage helper

While you built the suite to supplement your income, consider swapping living spaces to make that help stretch even further. If you don’t want to evict a good tenant, consider offering them the option to rent the larger space where you currently live. Because we never truly know what another household’s budget looks like, allow them to decide if they can afford to pay higher rent. If you decide to occupy the space yourself, follow the rules in your province for evicting a tenant. During the notice period you give them, sell any of your belongings that you can do without, and find places to store what won’t fit the smaller space.

If moving into your rental suite isn’t an option, find other ways to generate income with your home. Take in a border, rent storage space in the garage, or charge rent for someone to park their RV or trailer in your yard. Check into your local bylaws and consult with your insurance agent to help you know what is and isn’t permitted.

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Identify why you’re struggling with debt

Debt usually accumulates over a period of time and isn’t due to one big expense. And while you know now that you’re struggling to make your payments, knowing what got you to the point you’re at will make it easier to identify realistic solutions to get back on track.

For instance, if reduced income is the root cause of relying on credit to make ends meet, look for ways to increase your income. If overspending is the cause, take steps to rein in your expenses and discretionary spending. Look at big ways to change your lifestyle costs — such as moving into your suite — options to generate a lump sum of cash that can pay off one debt, such as selling a second car, as well as small ways to spend less every time you tap, click, or open your wallet.

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Tips to Combat the High Cost of Living

Consider your debt relief options

debt relief comes in all shapes and sizes and your options will be determined by your income, the type of debts you have, and your goals. desde loan consolidation through your bank or credit union, to alternative consolidation options like debt repayment programs or consumer proposalsthere are probably more debt relief options available to you than you might know about.

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The bottom line on what to do when you can’t pay your bills or debts

Managing a challenging financial time can be difficult and help is available if you would like it. While you might not want to adjust your lifestyle, keep in mind that your situation is temporary. When your circumstances improve, so too can your lifestyle options. If your worry is about what your changes will look like to family and friends, try not to let those thoughts sway your decisions. Your loved ones don’t want to see you struggle and ultimately, your definition of success and what’s truly important is entirely up to you.

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Related reading:

What Happens to Variable Rate Mortgages When Interest Rates Go Up

Get Relief from Your Mortgage and Avoid Foreclosure

5 Myths About Debt Payments – Fact vs Fiction

Scott Hannah is president of the Credit Counseling Society, a non-profit organization. For more information about managing your money or debt, contact Scott by e-mailcheck or call 1-888-527-8999.

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