With mortgage rates at historical lows and the ability to amortize a mortgage over 30 years (and in some cases 40 years if your mortgage is conventional), many buyers are qualifying for a lot higher mortgage amount than in the past.
As you know, cash flow is king. Many home owners are taking the lowest payment possible with the intention to increase their regular mortgage payment or make lump sum payments over the term of the mortgage. The problem is that statistically, very few homeowners ever do that. You get busy with life, maybe get a car loan or get a line of credit to help with some renovations around the house. Maybe you have a new addition to the family. The point is that life throws you curve balls and you never get around to increasing or making extra payments towards your mortgage.
The government is considering tightening the mortgage lending rules once again because there is this fear that what happened in the United States may happen here. Although we are much more conservative and our lending practices are nothing like those of your neighbours down south, one of the big causes of the problems in the United States was "Payment Shock".
If this is the first time hearing this term, "Payment Shock" is when the interest rate on your mortgage suddenly increases and your mortgage payment jumps $200 to $300 (depending on your mortgage balance) literally overnight. Many home owners could not afford to make that higher payment and the snowball effect started with foreclosures in the U.S. In Canada, rates today are around 3.14% for a 5 year fixed term or 2.99% for a 4 year fixed term. What will happen to your mortgage payment when you have to renew your mortgage 5 years from now and rates have normalized to the 5% range? Here is an example: If you start with a mortgage balance of $180,000 at 3.14% fixed for 5 years, your monthly mortgage payment for Principal plus Interest would be $770.55 and your balance owing in 5 years would be $160,379. When you renew your mortgage and let us say rates are going for 5.25% for a new 5 year term. Based on that new interest rate, your mortgage payment will jump to $955.73 per month for Principal plus Interest. That is a "Payment Shock" of $185.18.
What if I were to tell you that we can teach you a strategy to proactively manage your mortgage over the 5 year term, protect you from "Payment Shock", reduce your mortgage balance faster and save you thousands of interest on your mortgage?? This is the value of having a mortgage advisor on your side that will look after you and not worry about the banks profits.
Reviewing your mortgage annually with your mortgage specialist and adjusting your payments based on current markets conditions (or setting up a plan or strategy to factor in future interest rate increases) will pay your mortgage down faster and save you interest over the life of your mortgage.
Our focus is to help you become mortgage free as fast as possible. Sure, getting a great rate on your mortgage is one aspect, but that is not the only thing you should be considering when getting a mortgage. As your trusted Mortgage advisors, we will keep in touch and guide you over the years to help you achieve that goal of becoming mortgage-free.
Thanks for reading!
Your London, Ontario Mortgage Brokers at Dominion Lending Centres Forest City Funding FSCO# 10671