Having a mortgage plan—whether you are just beginning the process of buying a home, already own one, or plan on buying one in the next 5-10 years—is becoming increasingly more vital to the overall financial health of Canadian families.
For those who are in the process of buying a home, planning is crucial. If the past several years’ history is any indication, you can expect fixed rates to start increasing throughout the summer and into the fall, but not for the reasons you might expect.
The last several years have been unique as a result of the 2.99% mortgage craze. Banks have been highly competitive in the spring and summer markets, lowering fixed rates to historical lows in an attempt to gain market share. As the weather and the real estate market cooled in the fall, those same banks increased rates to increase profit margins during the slower months. In a way, rates have almost trended inversely to seasonal temperatures the last few years. What this means for someone who will buy sometime between now and the end of the year is you need to plan ahead. The best way to do that is by having your bank or mortgage broker secure a rate hold. Look to have today’s rates held for a period of at least 120 days. There is no commitment or cost to this service.
If you already have a mortgage, a slightly more long-term plan is required. 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, all while being barely noticeable on a day-to-day basis.
For those who know a mortgage is in their future but not necessarily right on the horizon, 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 a 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
So the question is, where are you in the mortgage process and what’s your plan? If you don’t have one already, give Mortgage360 a call.
