I have had several conversations with clients lately about when exactly do we anticipate interest rates to rise. The problem right now is that, generally speaking, the consumer has become complacent in thinking that interest rates will always remain as low as they are now.
Let me give you some historical perspective. The average Prime rate since 1951 is approximately 9%. When I tell clients this, some will then say, "well that included the 1980s so it really doesn't count!" I counter that with the average Prime rate over the past 15 years (excluding the 1980s) has been approximately 7%!
The whole point of "averages" is that they have occurred and CAN occur again; that's why they are called "averages"! Irregardless of whether a variable rate mortgage did well over the past 15 years, we need to be careful about thinking that past performance guarantees future performance. On the contrary, now may be one of the most dangerous times in recent history where a variable rate mortgage will NOT do as well as a fixed rate mortgage, and those who have not taken the time to plan for these potential dangers are at great financial risk.
So how can you prepare yourself for rising interest rates?
One of the best ways to prepare yourself for rising interest rates is to budget for them today. In other words, take your credit card, loan and mortgage payments and try and forecast what they would look like if interest rates rose 1%, 2% and 3%. Could you afford your payments if rates rose by these amounts? If your answer is "no", then you had better analyze your debt and cash flow NOW and work with a mortgage broker professional who can help you plan for the future by easing your debt payments now while increasing your cash flow.
If you are in a locked in mortgage it still makes sense to perform an annual mortgage review. There are many options to make your debt more efficient. The danger with an existing mortgage is that when it comes due, what happens if mortgage rates are much higher than what your rate is now? Working with a mortgage broker professional who specializes in debt restructure makes an annual mortgage check-up a standard option with their services.
Thanks for reading!
Your London, Ontario Mortgage Brokers at Dominion Lending Centres Forest City Funding FSCO# 10671