What do rising rates mean for the housing market?
Tuesday Oct 30th, 2018Share
The expectation is that rates will continue to rise. A qualified mortgage broker will be able to advise on which mortgage terms make the most sense given your qualification and hime horizon!
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How a rise in interest rates affects you A rise in interest rates can cost you more to borrow money. When interest rates rise, your loan payments will increase if:
- you have a mortgage, a line of credit or other loans with variable interest rates
- you'll soon need to renew a fixed interest-rate mortgage or loan
Preparing for a rise in interest rates
Pay down debt as much as possible to prepare for a rise in interest rates. If you have less debt, you may be able to pay it off more quickly. This will help you avoid financial stress caused by bigger loan payments.Here are ways to prepare for a rise in interest rates.
- Cut expenses so you have more money to pay down your debt
- Pay down the debt with the highest interest rate first so you pay less money towards interest
- Consider consolidating debts with high interest rates, such as credit card debts, into a loan with a lower interest rate but keep your payments the same
- Avoid getting the biggest mortgage or line of credit that you're offered
- Consider how borrowing more money could limit your ability to save for your goals
- Find ways to increase your income to help you pay down debt
- Make sure you have an emergency fund to deal with unplanned costs
How a rise in interest rates will affect your mortgage payments
Suppose you have a mortgage of $278,748 with a variable interest rate. Your interest rate is currently 3.1%. You have 23 years left in your amortization (or repayment) period. Your mortgage payment will increase by $457 a month if interest rates rise by 3%.
Figure 1: How much your monthly mortgage payments will increase if interest rates rise