How to Protect Yourself Against Rising Interest Rates
November 18, 2009
Great article in today’s Globe and Mail by Rob Carrick. MonsterMortgage.ca’s Vice President and Principal Broker Vince Gaetano is quoted referencing one of the common mortgage strategies we always advise clients on. If you are considering a fixed rate mortgage, take a variable rate mortgage product at 2.25% instead and pay it down as if your are in a fixed rate mortgage product at 4.25% or higher. This way you are paying down more principal and inevitably paying down your mortgage a lot faster. This strategy can help you save up to $15,000 on a $250,000 mortgage once your mortgage renews in five years.
Here is the full list Rob Carrick recommends people follow to help prepare yourself for higher mortgage rates:
If you’re buying, don’t borrow as much as lenders will allow you to have.
If you have a variable-rate mortgage, where costs rise along with your lender’s prime rate, set your payments higher than they need to be to create a cushion to absorb rate increases.
Make a lump-sum payment on your mortgage or increase your regular payments.
Find out what your mortgage balance will be on renewal and use an online mortgage calculator to project what your payments could be if you were to renew at higher rates.
Remember that higher mortgage costs will limit your ability to carry other debts.