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The world is vastly different today than anyone could have predicted just a few years ago.

For most of the last 20 years, both inflation and the Bank of Canada interest rates were 2% or less.

Then there was COVID, inflation, Russia’s invasion of Ukraine and interest rate hikes.

For some reason, many people were not prepared for things like the fact that their mortgage payments were going to take a big jump or their food bills were going to skyrocket.

Why not?

“Blindfull ignorance,” Matthew Jackson, a mortgage broker with Axiom Mortgage Solutions in Kelowna, told iNFOnews.ca. “Nobody thought it would get this bad and of course, they were hoping the war would end, hoping other things would end, hoping not to have a drought again. Stuff like that. Hoping that things will improve instead of everything getting worse.”

Mason Cox sees the toll the new economic reality is taking on people first-hand.

“What we’re seeing right now is something that hasn’t been the norm for most people, especially if you’ve been carrying a mortgage for 15 years,” the program manager and a credit counsellor with the Credit Counselling Society, said. “It probably just seemed the best of times, the really good rates that were there. I would hate for people to have that sticker shock when it comes time to renew. We’re not talking a couple hundred bucks here and there. Some of these are $1,000 and that’s a make-or-break change for someone with a budget.”

He's finding an increase in calls from people who never used the free counselling service before, not just those with mortgages.

“What we’re starting to see is more people who weren’t experiencing these issues in the past because, in the past, they had more options available to them,” Cox said. “They are starting to see those options become a little bit more limited.”

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Banks are not as willing to grant loans as freely as they were a few years ago and, if they do, the payments are going to be higher.

This at a time where everything from lettuce to gasoline costs more.

“If you’re feeling the pressure, you’re feeling the constraint, you’re not really sure where to go, seek professional advice,” Cox said. “A second pair of eyes is always very helpful in a scenario like that because they’re going to help you ask the right questions and look at the situation and say: ‘What are the necessities at the end of the day?’ What do you need to get by on on a day-to-day basis?”

Sometimes it’s just a matter of consolidating loans or looking at what can be cut from the budget.

“It’s easy to say put money aside for savings but sometimes, it’s just not there and that’s the reality of it,” Cox said. “It’s hard to budget yourself out in some circumstances because certain circumstances can be dire.

“The most important thing for any individual is, roof over the head, food on the table, can you get to work on time? Those are going to be your priorities. After that you have to assess your priorities and say: ‘OK. Now if I want this next piece of the puzzle, how do I get there?’”

When it comes to mortgage renewal, there are no simple solutions.

It used to be that variable mortgage rates were lower than fixed rates so tons of people went for variable.

When the Bank of Canada started raising its base rate in March of 2022, many people didn’t bother to look at whether paying a penalty to renew early would be a better deal. Or they didn’t bother locking in their rate, if they could. Or people may not know there is now a wide range in interest rates on offer.

“Normally banks only differ by .1% or .2% but now you could have a bank differ by .5% to 1% from another bank.”

Credit unions and other financial institutions often have lower rates than big banks.

Of course, switching to another lender means having to requalify, which is not the case if people stay with their existing lender.

“For a lot of people, their situation has changed over the years so they don’t qualify now because rates are so much higher,” Jackson said.

When rates were at 2%, a person could qualify for a larger mortgage. Renewing at more than 5% may not be affordable.

The RBC Mortgage Calculator shows that $500,000 borrowed at the current five-year fixed rate triggers a payment of $3,181 a month. The same money at 2% costs only $2,117 a month.

And, it makes a huge difference in total interest paid. At 2% that $500,000 costs $135,176 in interest. It’s more than triple, at $454,363 if it’s paid back at 5.94%.

Other options to keep payments affordable include extending the amortization period. Most banks allow extensions up to 25 years without having to requalify, Jackson said.

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The key thing is to shop around.

RBC, for example, shows its five-year fixed mortgage at 6.34% while Vancity Credit Union offers theirs for 5.39%. But that’s for what it calls a fixed-term fixed rate. Its five year open-term fixed rate is 7.34% and its home prime fixed term is a whopping 10%.

What’s a homeowner forced to renew to do?

“Three years fixed is definitely what the industry is doing right now but there are brokers and bankers out there who are pushing the five-year because those rates are lower,” Jackson said. “The reason the industry is mostly recommending a three year rate is because, in two to three years, things should be figured out. We should have conquered inflation and rates should have calmed down because we’ve figured the economy out. Then you’d be renewing into a three point something rate instead of renewing at a 4.8% or a 5.5% rate.”

Of course, for the past 20 years everyone thought the economists had figured it all out so inflation and interest rates would never again go higher than 2%.

“We were never supposed to have any of the things that happened,” Jackson said. “They just happen when they happen. You can’t predict Russia or Ukraine or any of the other things that happened, like COVID. There are external factors that happen. There’s always going to be something happening. It's all just a matter of whether we’re prepared for it.”

That means seeking professional help early on, even if a mortgage isn’t up for a year or two or finances seem to be manageable.

“It’s never too early to start to explore what’s going on,” Cox said. “Even if you think your financial situation is in a good spot, it’s OK to take a step back. The worst thing that could happen is you will have a better understanding of what’s going on.”

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