How rising mortgage rates affect monthly payments

What you can do to protect yourself

So what is the problem?

Right now, interest rates for mortgages are at historical lows

Exciting!

So a bank will be quick to set you up with a fixed-rate mortgage that attempts to capitalize on these low rates, and their projection for the cost of your 5 year mortgage will look GREAT.

Let's have an honest conversation about interest rates and about how mortgages normally are handled. Traditional banks and brokers specialize in what I call the "set it and forget it mortgage." And if interest rates were to stay at their historical lows, it would be a no-brainer. Learn more about the difference between banks and brokers here!

Here’s the problem: interest rates are rising globally and they will rise in Canada.

If your mortgage isn't strategic about mitigating any and all potential risks, you could be facing a significant increase in monthly payments.

We actually have a better term for it. Payment Shock. In fact, "payment shock" is what brought the US housing market to its knees in in the late 2000’s. The US shaved off over 30% of house values as the reality of the global financial crisis hit and credit dried up all over the world. American mortgages “re-set” at higher rates than they ever imagined. What followed were massive foreclosures which led to the fall in prices.

In Canada, we don't have to worry about “re-sets” but we do have to worry about renewals.

Here's how it works:

Let's assume you take out a $350,000 five year fixed-rate mortgage at the Royal Bank today and their best advertised five year rate is 2.79%

Your payment would be $1,619/month

Now, let's put that fixed-rate mortgage into a rising interest rates scenario:

As you go about your life for the next five years of your term, mortgage interest rates steadily increase to 5%.

(By the way, in 2007 before the global financial crisis took hold, the best discounted mortgage rate one could get was 5.25%.)

Now it's time for your renewal, and that's when a new number stares you in the face.

$1,958/month.

The difference in those two payments? Payment Shock.

Think about this. If your mortgage payment was to go up by $339 in one month today, would that be comfortable for you?

sad looking dog is lies head upon a white concrete block

Most would answer no.

So, How Should I Protect Against Rising Rates?

Let me show you how Blink’s Lifetime Mortgage Monitor works. Even if you don’t get a mortgage with Blink, you’re still able to manually execute on this strategy for your own mortgage.

Let's assume your monthly mortgage payment is currently $1500 for a $400,000 home.

Throughout the next five years of your mortgage journey, we’ll send a monthly email that compares your current fixed rate, to the 5 year fixed rate currently available in the market, and help you understand what you would be paying if your mortgage was up for renewal today.

To summarize if the market interest rates rise, we’ll suggest you pay a tiny bit extra to keep up with the rise (even though your mortgage is a 'fixed rate').

The bonus effect of this strategy is the rapid pay down of your mortgage principle, which is an excellent benefit as well in a potentially rising interest rate environment.

Accounting for rising interest rates, our special structured mortgage management plan saves you $11,116 in mortgage principal over the next five years and eliminates the surprise of payment shock.

Also, take a look that PRO-ACTIVE mortgage management also reduces the effective amortization of your 25 year mortgage to 15.2 years after the first five year term. That is almost 5 YEARS of payments that are now saved off the long term balance of your mortgage.

The best part?

If rates DON'T rise, if a miracle occurs and rates continue to stay at historic lows, then this strategy still does not cost you any more money.

Ready to go?