As interest rates continue to rise, there is a chance that, come renewal time, your mortgage payment will look dramatically different than it does now. Rising interest rates affect mortgage payments in a variety of ways, especially if you have a variable rate mortgage. A dramatic increase in your mortgage payment can have quite a deleterious effect on your financial goals and/or spending power.
That said, as your mortgage broker i’m here to help you prepare for the eventuality that you will have to renew, and provide some strategies to help you reduce the impact these rising interest rates will have on your future financial standing.
It helps to be aware of something called a trigger point. When you have a variable rate mortgage and a fixed payment amount, a trigger point is when the amount of your payment is going entirely towards the interest on your mortgage: in other words, the principal is not being paid down at all. This drastically increases the amortisation period of your loan, and when it comes time to renew, the amount of your payment will dramatically increase in order to bring the mortgage period back within acceptable guidelines.
The best way to avoid this kind of shock is to immediately increase the amount that you are paying towards your mortgage. Additional payments will go directly towards paying down your principal, and it will lessen the blow when it comes time to renew. Even a small, but consistent prepayment amount could reduce your amortisation period dramatically and save you a lot of money in the long run.
This approach could even be employed by those with a fixed rate mortgage to finish paying off your property sooner.
Whatever kind of mortgage you have, i’m here to help you find the best solution for you. We help create a strategy that fits your financial situation so that you are paying down your mortgage in an optimal period of time, while also enjoying your home and life.