Historically low interest rates are creating an opportunity for Canadians to fulfill their dream of home ownership. Whether you are a first time buyer or a current owner, understanding affordability will ensure that you are comfortable with your mortgage payments today and in the future, so if interest rates rise and your mortgage is up for renewal, the new interest rate and associated mortgage payments are not overwhelming. Here are three tips to help home buyers and owners benefit from the low interest rate and provide for any potential future interest rate increases.
Pay down your mortgage debt faster. One way to do this is by setting the mortgage payments higher than required by taking advantage of any privilege payment options that your lender permits. Most Lenders will allow you to make annual lump sump payments, or increase your scheduled mortgage payments by a certain percentage. Taking advantage of this will help you reduce your principal balance faster. In addition, this will also condition you to adjust your lifestyle and budget so that upon renewal, even if the interest rates rise you have become accustomed to the higher required payments thereby making your mortgage more comfortable and manageable.
Anticipate future payments. Use online mortgage calculators to compare multiple mortgage payment scenarios. Base one payment calculation on today’s interest rates and one or two other calculations on interest rates that are perhaps 2% or 3% higher. This exercise will help you understand how much cushion you need in your budget to protect you from any potential future rate increases.
Lock in for longer. If you see your life changing, for example a possible retirement in the next few years or you have university tuition to contend with in the near future then you may want to lock in for a longer term so that you can count on the stability of your mortgage payments not increasing during that time. If you are locking in however, take the time to explore what flexibility you have if you do need to make changes to your mortgage earlier then expected. Working with your lender to fully this will give you the comfort to know your options ahead of time so that you can make informed decisions.
Kevin & Faye Kitzman
Remax Real Estate Centre
Direct : 519-577-0603