How To Protect Yourself From Rising Interest Rates

The Reality of Higher Interest Rates

There is no doubt now that the historically low Mortgage Interest Rates we have become accustomed to are now a thing of the past. Therefore, the time has come for all of us to prepare ourselves for the realities of higher interest rates.

The last 6 months have seen many changes to the mortgage landscape, with the onset of the new mortgage stress test for uninsured mortgages, the increase in the stress test rate for insured mortgages, increases in the Bank of Canada overnight rate, a steady rise in fixed mortgage interest rates all combine to make buying and maintaining a home that much more expensive. Add to that the general increase in the cost of living.

The increase in Prime rate will also affect unsecured credit such as lines of credit and credit cards. And the Bank of Canada is certainly in an upward trend with the Prime. Given the indebtedness of Canadians, stormy seas are certainly ahead for the unprepared.

Mortgage Renewals

With approximately 20% of mortgages in Canada coming up for renewal in 2018 in a rising interest rate climate, it is necessary to consider the impact this will have on our personal mortgage.

What will these interest rate increases mean for you?

70% of mortgages in Canada are 5-year fixed rate mortgages. The interest rate secured for these mortgages in 2013 is similar to what is available today. For these homeowners, it is likely the possible increase in payment due to a slightly higher interest rate may be easy to handle, assuming other consumer debt is not already significantly eating into your monthly cash flow.

In 2019, however, it is very likely interest rates will be significantly higher than the interest rates secured by consumers in 2014. This cohort could see significant payment shock.

What this all means is this. As interest rates go up for mortgages and unsecured debt such as credit cards and lines of credit, payments will also increase, eating into what little disposable income Canadians have left.

What can you do?

If you purchased your home prior to 2014,  it is very likely you have seen a healthy appreciation in value in your home.

  1. Consider consolidating your unsecured credit with your mortgage and lock in at today’s still low rates before you start to feel the pinch.
  2. If you are in your retirement years, consider the benefits a reverse mortgage can provide.

If your mortgage is maturing in 2019, consider breaking the mortgage early and locking into a new mortgage term and today’s lower interest rates.

The Bottom Line

If your mortgage is maturing in 2018 or in 2019, it is highly advisable to contact an experienced Mortgage Broker to evaluate your position.

The new mortgage rules that came into effect January 1, 2018 could also have an impact on your ability to qualify for what you need.

Click here to schedule your 20 minute telephone mortgage strategy session with us today. We will give you a Free Home Valuation and assess how the new reality will affect you so you can plan ahead.

Dominion Lending Centres Edge Financial
8 Sampson Mews, Suite 201 | Toronto | ON | M3C 0H5, FSCO #10710

Please visit the Financial Services Commission of Ontario Directory for more information and to check licensing status at http://mbsweblist.fsco.gov.on.ca/agents.aspx