61% of Canadians believe interest rates will rise to some degree throughout 2011, according to CAAMP’s spring 2011 survey. 7% believe interest rates will increase quite dramatically and only 3% believe interest rates will fall. Are Canadians ready for an interest rate increase? How prepared are they? “Increased mortgage interest rates…will bring stresses for Canadian mortgage borrowers, but a very substantial majority of them are prepared,” stated CAAMP’s Chief Economist, Will Dunning.
Interest rates will always fluctuate, but there are many ways to ensure you’re prepared.
1. Do your homework
Prepare yourself; dig out your mortgage documents. Find out what type of mortgage you currently have and be aware of the terms and conditions. Specifically, find out what rate you’re paying now, the term of the mortgage (i.e. the length of the contract if you have a fixed mortgage rate), and the amount left on the mortgage.
2. Best Rate
If you’re refinancing or looking for a new mortgage make sure you research different options. Ask for a better offer and make sure you compare the market. Compare mortgage rates offered by banks, brokers, specialty lenders and credit unions. Talk to a professional, they may have access rates that aren’t published. A service like this will help you determine the benchmark for a competitive mortgage rate and also put you in touch with the broker or lender offering that rate.
• Try to get a better rate now
If your mortgage is up for renewal in the next few months, speak to a professional about getting a new rate now. Some lenders will allow you to renew early by blending your existing mortgage with a new mortgage of a longer term. This might cost you a small administration fee, but it could be worth it in the long run.
• Lock in a low rate
If you’re on a variable rate mortgage and you’re concerned about rate increases, it might help ease stress by locking in a fixed rate. You’ll pay a premium for the security of static monthly payments, but it might be worth the peace of mind. This decision is based on your personal risk profile. If you’re a new home buyer, but haven’t yet found your dream home, get pre-approved so you can lock in a rate. Most pre-approvals will hold your rate for up to 120 days at no charge. This will give you some breathing room as you hit the open houses.
3. Pay Down you Debt and Don’t Live Beyond Your Means
Decrease the amount of money you’re borrowing will help alleviate the stresses of increased rates as well as piece of mind. This may seem unrealistic, but even small changes will help you pay down your mortgage faster. There are many options such as: changing to a bi-weekly rapid payment schedule, make a lump sum payment or double up on your payments one month. Any of these options will help you save on interest and leave you mortgage free years sooner.
Overall it pays to get professional advice, very few will understand the pros and cons of the mortgage options. A professional may also know of rates and which you may not know about. Everyone is in a different situation and has different needs and expectations.
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