Canada’s low mortgage rates have been in the news for so long that they have essentially become the norm. The 18 percent plus rates of the 1980’s are ancient history. It seems that we have become so accustomed to cheap money, that we have forgotten that it might be temporary and just maybe, it may also become a thing of the past. Although the Bank of Canada hasn’t given us any indication of a rate increase in the immediate future, it’s still important to use our (borrowed) money wisely and plan for the future. After all, most of us are locked into 25-year mortgages, and we know just how much change can occur over two and half decades.
Be aware of how much a change in interest rates will affect your housing costs. To put things in perspective, a $350,000 mortgage would cost the average buyer $1570 per money at a borrowing rate of 2.5%. If rates went up just 1%, the same mortgage would cost $1750 per month. That’s a $180 difference. What’s even more significant is that same 1% increase would add an additional $54,600 to your cost of borrowing over the lifespan of your mortgage.
Take advantage without over extending yourself. It’s hard to predict what will happen to interest rates over the next few years. Even some of Canada’s most educated economists were surprised when the overnight rate went down instead of up. That being said, it’s a wise idea to be prepared for a rate increase. If your mortgage renews at a higher rate at the end of your current term, what will it mean for your household budget? Do you expect your income to be the same, or are you planning on starting a family? Talk to your mortgage professional about your long term plans so they can choose a financing option that meets your needs.
Take advantage of your pre-payment options. The best way to protect yourself against a future rate increase is to decrease the size of your mortgage. Some mortgages allow you to increase your payments each month, or make a lump sum payment up to a certain percentage of the balance. In most cases, it makes more sense to tackle your higher interest debt first, but if your credit cards are clear, you will never regret knocking a few thousand dollars off your mortgage. Remember, the quicker you pay it off, the more you will save in interest over the long haul, and that could amount to tens of thousands of dollars in savings.
Are you looking to Sell or Buy a home in Calgary and need someone who won’t rest until you’ve found your dream home or until your home is sold? I’ll work hard to earn your trust and to deliver exactly what you need. Contact me at 403-589-0004 or at TheHowardTeam.net.
About Bryon Howard
Bryon Howard and his team of Calgary real estate professionals sell an average of two homes a week. He is a member of the MLS Million Point Club, which ranks him roughly in the top 1% of productive realtors in Calgary. His aim is not just to please clients but to help them buy/sell a home in Calgary at the best price, in the shortest time, and with the least hassle. He is a member of the RE/MAX House of Real Estate that leads in the Canadian market. Learn more about Bryon at TheHowardTeam.net.