No one has a crystal ball, but we do know that rates are on the rise. By how much and when is anyone’s guess, but these increases may have a significant impact on homeowners if they are not prepared. The affordable 5 year fixed mortgage that you have now, might turn into a slightly less affordable mortgage at renewal time.

Here are a few tips for people on how they might protect themselves now from increased rates in the future.


1.    Don’t Max your self out – If you are buying a new home you might feel tempted to borrow as much as you can. When you have all your money in the game you have less options.  If interest rates rise that home could become very unaffordable when it comes time to renew.

2.    Use the extended amortization and pre-payment to your benefit – Many home owners are enjoying lower payments by using extended amortizations of 30-35 years. In the case of rising rates, build yourself a buffer, take a 30-35 year amortization but pay it at a 25 year frequency.

Another good way to decrease your amortization and start hammering away at the principal faster is by changing your payment frequency. Instead of monthly payments, choose bi-weekly. On a 35 year amortization bi-weekly payments will decrease the amortization from 35 to 29.2 years.

Also consider doing lump sum payments using tax returns, bonuses or extra cash.
 
3.    Consider the future – Consider what increased rates will do to your monthly payment at renewal time. If you are locked into a mortgage for 5 years @ 4% and rates increase by 2.5% your monthly payment will increase by $143. Considering the impact of this increase now my help save you headaches in the future.

4.    Increase your payments on your variable rate mortgage– If you have a variable rate mortgage you may want to set the payments higher than the ultra low payment you are getting now. That way when rates  go up, you won’t feel the increase as much.

5.    Keep track of your other debts – If mortgage rates go up, so to will the rates on loan and credit cards. Try to pay more than the minimum payment on credit cards and if possible try not to carry a balance.  If you get a hold on your other debts now, you won’t feel the pressure when it comes time to renegotiate your mortgage down the road.

6.    Talk to a professional – Does thinking about increased mortgage rates and trying to make a plan make your head spin?  Talk to a mortgage professional about how to put these tips into action. And when it does come time to renew don’t sign the renewal letter without getting a second opinion. Mortgage Planners can either help you negotiate a better rate at your existing bank OR find you a better deal elsewhere. That way you have more money to devote to increased payments or other debt obligations.

Most important of all it costs you nothing to speak to me and I am available anytime.  Send me a quick email or call me if you have any questions 403-863-9770 or jen@mortgagewithjen.com
Even if I didn’t do you mortgage I am happy to talk to you and walk you through a common sense plan for the future!

Jen Mikla
Mortgage Planner
Mortgage Architects
P: 403.863.9770
F: 403.398.1360
E: jen@mortgagewithjen.com
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