One of my colleagues was talking today about their mortgage. They have a mortgage of approx. $600,000 on a house worth ~$1MM in Ottawa that is coming up for renewal in the next ~8 months. (at that point he will have 20 yrs left of a 25 years amort.)

He’s been paying 3.34% interest rate and their monthly outlay is $2,945 monthly or $35,340 annually.

If he could renew right now without penalty, his current options would be in the range of 5.34% which would amount to $3,607 monthly or $43,284 annually. This would result in ~$8,000+ in additional annual expenses, or $40,000 over the next five years.

Even worse, if the rates continue to rise as they are expected to do so, he may be presented with a much less favorable option. Should that be in the range of 7.34%, his annual mortgage expenses will balloon to $51,948 annually, which is a whopping ~$16,000+in annual expenses; or $80,000 over the next five years.

Neither option is affordable to him; he’s essentially going to become “house poor”. This is the reality of purchasing the absolute biggest home that he could afford at the time when interest rates were at all-time lows.

If you have mortgage renewals coming up, make sure that you are proactive in assessing their impact on your financials. We’re beginning to snap back to reality and a lot of people are going to be faced with sobering new financial situations. Best prepare yourself for what that means and ensure that you have a plan as to how to best address your new monthly costs.