What goes up must come down! By the same token, what goes down must come up! After almost a decade of warning and keeping the rates the same for the last 7 years, the Bank of Canada might finally hike its benchmark interest rate from 0.50% to 0.75% at its upcoming Board of Governors meeting on July 12, 2019. This small increase of 0.25%, if it happens, will be the start of a road to increased interest rates in the coming years. This raise will cause mortgage interest rates to go up, too.
Initially, it won’t put a dent in your finances. But when an initial 0.25% increase in mortgage rates slowly creeps up to a 1% hike and eventually more than that, some of us will feel the pinch. Here is an illustration: Let’s say you owe $500,000 on your home loans at an interest rate of 3% compounded semi-annually for 25 years. Your mortgage payment is around $2366. If the rates inch up by a full percentage, your monthly payment will be about $2630. That is an increase of about $264 in your payment every month. By the time, the rates inch up by 2%, your payment will go up by almost $542 per month.
Such an increase in mortgage rates can hit the real estate market with a double whammy. On one hand, the existing homeowners start to have difficulty in making their new higher mortgage payments. On the other hand, the new home buyers find it hard to qualify for their desired loan amount. That results in a drop in home prices. We have some tips for you to prepare for higher interest rates & higher payments. First of all, don’t bite off more than you can chew. When taking a new loan, leave some room for yourself to be able to make higher payments should the rates go up. Some banks are already qualifying the buyers at higher interest rates or lower debt ratios just to make it safe for their clients.
Second, pay-off most of your high-interest rate consumer debt including credit cards. One easy way is to get a Private Mortgage on your house to pay off all your consumer debt. You can get a Private Second or a Private Third Mortgage from a Broker who specializes in Bad Credit Mortgage and Private Money Mortgage. So, no worries as you can get a Private Money Mortgage even with Bad Credit, Low Credit Score, and even without income verification. Within 60 days of paying-off your consumer debt, your score should go way high. After that, pay-off your credit card balances every month so you do not have to pay 20% or so in interest on those balances. Use that freed-up money to build up savings.
After you profited from having a Private Money Mortgage, start to invest your savings at higher rates, which will net you some real income after paying off your taxes and accounting for inflation. A savings account in your favorite bank is not an investment by a long shot. In fact, you are being left behind in the dust. A savings account is like a hatchling the nest waiting to grow up, fly, and soar the sky. Eventually, you should also learn to fly and move up to investing and soar the skies of wealth.
Don’t let this rate hike or the fear of future rate hikes hold you back from buying real estate. Each day without owning real estate, you are being left behind. Real estate is one of the best hedges against inflation; especially, if you don’t use it as your piggy bank. Finding a professional Private Money Mortgage Broker before you fully thrust into the real estate market is very important. With years of experience, Crown Funding provides services in Private Money Mortgage, Bad Credit Mortgage, No Income Verification Mortgage and more! We are ready to help you find the right mortgage and succeed!
Jeet Singh is a writer and a mortgage broker at Crown Funding. He can be reached at [email protected]or 778-320-9494.
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