How to Protect Yourself Against Interest Rate Hikes

Don’t forget to catch the leading Canadian Mortgage and Canadian Real Estate show, CP24’s Hot Property, every Thursday night at 7:15PM!

This week’s ‘Burning Topic’ will be Rising Mortgage Rates in Canada, a hot topic that has many home-owners in Canada talking.

First thing is first, remember to keep some perspective:

• Interest rates are still at historic lows and will stay low for a while longer.
• 10 years ago the avg. 5 yr fixed rate was considered very low at it was hovering around 5%, almost double where the fixed rate was just last week.

Rate hikes come and Rate hikes go:

• RBC did lead the charge in increasing rates this time
• The same way Big Banks follow suit during “rate wars”, lenders also follow suit during “rate hikes”
• Yes, in this scenario, most lenders followed suit
• Bank collusion? I will let reality speak for itself on that one.

Money Saving Tip – Secure the lower rate and save your money:

• Your mortgage advisor should tell you that they can secure rates four months in advance, so if rates go up, you still get to keep the lower rate, if rates go down…you get the lower rate…that way YOU WIN, NOT YOUR BANK!

How much could you have saved last week vs. today?

Using the example of a 5 yr fixed rate mortgage of $100,000 amortized over 25 years, the client who followed the above advice would save the following over the next 5 years:

• 5 year fixed rate 3.29% (RBC today) vs. 2.89% (discounted rate)
• Monthly payment – $488.25 vs. 467.62
• Approx. monthly savings – $20
• Approx. yearly savings – $240
• Approx. savings $1200 over the term in after tax income! Depending on your income tax rate, this could be over $2000 in pre-tax income.
• On a $200,000 mortgage that is a savings of approx. $4000
• On a $300,000 mortgage that is a savings of approx. $6000

If you take advantage of terms and conditions in your mortgage contract such as accelerated repayments, your savings could be a lot more!

Missed last week’s Hot Property? Don’t worry, MonsterMortgage.ca and CP24 have you covered!

Watch the last Hot Property here and get up to date with the hottest topics in the GTA Real Estate and GTA Mortgage market.