Revisit your mortgage plan today

Interest rate increases looming for borrowers

nolanHeading into the home stretch of 2014 and toward 2015 is an opportune time to review or create a mortgage plan.

A mortgage plan — whether you’re buying a home, already in one, or planning on purchasing revenue properties in the next few years — is vital to you and your family’s overall financial health.

The last several years have been unique as a result of the 2.99 per cent mortgage craze. Banks have been highly competitive, lowering fixed rates to historical lows in an attempt to gain market share.

And in today’s low-interest-rate environment, it’s not a question as to whether rates are going to increase, but when. Borrowers need to position themselves in a way they can absorb higher interest rates and/or be able to still pay off their mortgages faster.

The good news is one or two simple changes to a mortgage – such as slightly increasing payments or making weekly, instead of monthly, payments – can cut amortization periods in half and still moderate the effects of higher interest rates.

Planning in advance can also help borrowers avoid unforeseen pitfalls. If you expect to purchase a home in 2015, or your mortgage is up for renewal, it’s worth talking with a mortgage professional now to lock in rates before they increase.

For example, a one per cent increase in interest rates can reduce the amount of money you can borrow by 10 per cent. In the case of someone who qualifies for a $400,000 mortgage, a one per cent increase in mortgage rates would decrease his or her mortgage qualification to $360,000. In Calgary’s current market, $40,000 can be a big difference.

On the flip side, a one per cent increase in interest rates can also increase the amount you pay on your current mortgage, if it’s up for renewal. In the case of someone with a $1,000 monthly mortgage payment, a one per cent increase would increase his or her payment to $1,111 – an additional $1,332 per year.

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, such as rental properties, are a 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, teaching Calgarians how to build wealth that thrives no matter what the economic environment. Stay tuned for further information.

Nolan Matthias holds a bachelor of arts in Economics, is the co-founder of Mortgage360 and the author of The Mortgaged Millionaire. Call Nolan at 403-615-6132 with your questions or to set up an appointment with an Accredited Mortgage Professional (AMP).

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