In a few short years, interest rates have risen to more than five percent from 1.79 percent in late 2020. The low-interest rate helped drive real estate sales and home prices upward.  

If you’re a new home buyer, or if your mortgage is coming up for renewal, there are several key points to consider. An interest rate increase of two or three percentage points means significantly larger mortgage payments. This is important to keep in mind as interest rates are expected to continue to rise. 

DOWN PAYMENTS 

The National Bank of Canada states that a family with a median household income of $78,000 a year will need 6½ years to save a minimum down payment of about $50,000 on a house or condo, which averages in Canada $770,000. In our region, we have not seen the exorbitant prices as the rest of the country, but most families will still have to save for several years to make a minimum down payment. 

  • If you make a down payment of less than 20 percent, you will have to take out mortgage insurance, which increases your monthly payment.
  • Making a larger down payment immediately boosts the equity in your home. This helps you build wealth as equity is a resource you can borrow against to improve your property or pay down other high-interest debts.
  • A borrower pays more interest in the early part of the mortgage, then pays more of the principal in the latter part of the loan. 

FIXED-RATE OR VARIABLE MORTGAGE? 

Fixed-rate mortgages allow you to fix your interest rate locking in your payments for whatever term you choose. 

  • A fixed-rate mortgage has slightly higher interest rates than a variable-rate mortgage. 
  • If the market shifts, your interest rate won’t. This predictability allows for easier long-term budgeting.
  • The downside of fixed-rate mortgages is if the interest rate drops, you will be locked in at the higher market rate until it’s time to renew your mortgage. 
  • Based on your prediction of future interest rates, buyers may want to consider a shorter term in case future interest rates decrease. 

Variable-rate mortgages are generally lower than fixed rates but as they are variable they can rise higher than fixed-rate mortgages.

  • Variable rate mortgages also have fixed terms but the interest rate fluctuates based on the prime rate. 

MY MONTHLY PAYMENTS

To understand how a rate increase could impact your monthly payment, check out our mortgage calculator, which allows you to plug in your mortgage at various interest rates. Or, better yet, contact one of our NPSCU mortgage advisors who can help you decide what’s best for you and your family at 1-877-787-0361

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