Rates May Not Stay Low Forever – Sensitivity Test Your Mortgage


Buying a home is the single largest financial investment most of us take in our life. Over the past number of years, we have becoming very used to low mortgage rates. Some younger Canadians know nothing but low rates, but low rates haven’t always been the norm. Remember the 80’s? The time of big hair, shoulder pads, and great music. It was also a decade known for its high mortgage rates. In the early 80’s, mortgage interest rates peaked at just over 21%. This meant that a $350,000 mortgage amortized over 25 years cost $5,650 a month. Today’s 2.9% rate has that same scenario costing Canadians just $1,640 a month.

I’m not suggesting that rates are going to return to double digits, but it’s better to be prepared. Will you be able to withstand even a small increase? Run the numbers on your current mortgage to see if your household budget can handle a fluctuation. Make it painless and use our mortgage payment calculator. Think about how a mortgage rate increase may change your day-to-day expenses.

Let’s Take a Closer Look

You have a mortgage of $350,000 that’s currently at 2.9% amortized over 25 years. What if rates increase to 3.5%? You’l need to find an extra $110 per month in your budget. Where would you cut back?

That’s only a 0.6% rate increase, but what if it were more? Some generations may dramatic increases to mortgage rates difficult to believe. Consider the 18-year stretch between 1973-1991 when five year fixed mortgages never fell below 10%. What if rates were to raise just half of that to 5%? Your same $350,000 at 5% means you now need to find an extra $400 per month.

How Did You Manage?

If you are thinking about getting a mortgage, temper the natural emotional excitement of buying a home with some financial practicalities. Don’t take on too large of a mortgage and risk becoming house poor. If you already have a mortgage, start to think about how you would manage with a rise in rates. Don’t be caught off guard.

Periods of low interest are a great time to pay down debt. unfortunately, people often do the reverse and accumulate more debt because they think of it as inexpensive. Take advantage of this time of low rates and pay down your debt – don’t accumulate more.

Category: Debt Management | Tagged in:

Apr 12, 2017

Meg Penstone

About Meg Penstone

Meg has over 20 years of experience working with individuals and couples experiencing financial difficulty. Meg is a Credit Counsellor and Client Service Specialist working for Hoyes, Michalos & Associates out of their Kitchener and Guelph offices.

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