The first article I wrote for this column back in June asked you, the reader, what’s your mortgage plan? Six months later, as we head into the home stretch of 2014 and start looking towards 2015, it is an opportune time to look at your mortgage plan once again.
Having a mortgage plan—whether you are just beginning the process of buying a home, already own one, or plan on purchasing revenue properties in the next few years—is becoming increasingly more vital to the overall financial health of Canadian families.
The last several years have been unique as a result of the 2.99% mortgage craze. Banks have been highly competitive, lowering fixed rates to historical lows in an attempt to gain market share. The question is how do we take advantage of the low rates to create a secure financial future?
If you already have a mortgage, a long-term plan is vital. In today’s low interest rate environment we can expect one of two things – rates are either going to stay steady or increase. Given that we know a rate rise is inevitable, even if we don’t know when, making sure you are both in a position to absorb higher interest rates and pay your mortgage off faster are both important.
Most people don’t realize that making one or two simple changes to your mortgage, like increasing your payments slightly or making weekly, instead of monthly payments, can cut your amortization in half, while at the same time insulating you from the effects of higher interest rates.
For those who know a mortgage is in their future in 2015, planning in advance for the day when home ownership becomes a reality can help one avoid mortgage pitfalls that you may not even realize exist.
For example, it may surprise you to know that a one percent increase in interest rates can reduce the amount of money you can borrow by 10%. For someone who qualifies for a $400,000 mortgage, one per cent increase in mortgage rates would decrease their mortgage qualification to $360,000. For those of you who have looked at houses in Calgary recently, you know that $40,000 can be a big difference in today’s market.
Whether you are a prospective buyer or an established homeowner, perhaps planning for a revenue property is in your future in 2015. Purchasing assets that produce income, like rental properties, is a proven way to build wealth.
If revenue properties are something you are interested in, we can help develop a plan that is right for you. Our Cash Flow Club will kick off in January of 2015, teaching Calgarian’s how to build wealth that thrives no matter what the economic environment. Stay tuned for further information.
