Build Your Equity Faster, Even with Rising Rates
April 12, 2022 | Posted by: Jill PollackI’ve been getting a lot of questions about the news of rising interest rates. The Bank of Canada made its first Prime Rate increase since 2018 on March 2, and it’s creating a stir among homeowners.
I’m here to tell you that there’s no need to panic.
This is actually a really good time to look at how you’re managing your mortgage and what you can do to build your equity faster!
What a .25% Increase Looks Like on a Variable Mortgage
If the balance on your mortgage is $300,000, a .25% increase could increase your monthly payment by $35.19. Quite a small amount for all the hype!
Before any payment change happens, your mortgage lender will notify you what your new rate and payment will be.
What I suggest is to adjust your monthly payment amount — bump up your monthly payment to what you would pay on the fixed term and take advantage of your great low rate.
You can use your prepayment allowances to make a regular extra payment, if your payment is $1,227 — go ahead and bump up to $1,466!
That $238 extra would be going straight to your principal. And, the faster your principal is paid down, the more equity you build in your home, and the less interest you pay over time!
Contributing this additional money on your principal will also prepare your budget for any future rate increases this year. Again, even modest extra payments have a strong impact on your balance, and having that cushion will mean your budget will change little, if at all, if we see more Prime Rate adjustments over time.
I have a Prepayment Analyzer calculator so you can test out your payments and see how much interest you’ll save by increasing your payment.
Questions About Moving to a Fixed RateIf you’re in a variable product, your lender will have an option in your contract to move you to a fixed rate product.
Ask your mortgage lender what rates they are offering on their fixed rate terms. Most of the time, they are going to be higher than your variable rate. It may not actually be the time to secure a fixed rate.
Let me know what your lender is offering you for fixed rates and buzz me to discuss if converting is the right choice for you.
What About Fixed Rate Mortgage Holders?
Changes to prime rate do not directly affect fixed rate mortgages. Once you are locked into a rate for your term, that’s the rate you pay until you renew or end your term early.
Renewing Within the Next Year?If you are coming up for renewal within the next year, this is a good time to look at locking in a lower interest rate so you continue to benefit from the low rates for the next 3-5 years.
Not Renewing Soon?If you’re not renewing soon, this is actually a really good time to look at how you’re managing your mortgage and what you can do to build your equity faster.
What I suggest is to adjust your monthly payment amount - bump it up to take advantage of your great low rate. You can use your prepayment allowances to make a regular extra payment, if your payment is $1,227 - go ahead and bump up to $1,337*! *pending your prepayment privileges.
I know that there’s lots of information out there right now about mortgage rates, inflation—I can’t remember a time I saw mortgages in the news so much!
But, I try not to get involved in the hype too much. Instead, I want to look at the productive ways to help you manage your mortgage, regardless of what’s happening in the news.
With the support of my amazing new brokerage, Jencor Mortgage Corporation, we’re here to help you answer questions about your mortgage or home financing.