Variable Rate Mortgages in a Rising Interest Rate World

Everywhere you look people are telling you what you should do when you are facing rising interest rates and the Bank of Canada is pushing up the prime rate.

I’m not going to tell you what to do, because every situation is different.?So you should consult your lender, your Mortgage Agent and decide what the best choice is for you and your family.

I will, however, show you some of the options you might consider.

1.??????Ride it out. Over many years variable rate mortgages have shown to be better than fixed rate at helping you pay down your mortgage sooner.?Depending on your particular product this may have different implications. Please remember that as rates rise more of your payment goes to cover interest and less to principal...so you re extending the time it will take to pay off your mortgage.

a.??????If your payment has been fixed you may have to increase your payment to ensure you are covering the interest cost if rates rise to a certain level…the “Trigger Rate”.

b.??????If your payment has been adjusted as rates rise then you likely need to do nothing.

c.??????You can voluntarily increase your payment in accordance with your mortgage terms.

2.??????You can switch to a fixed rate product.

a.??????Your current lender may have an option for you to do this.

b.??????Most variable rate mortgages can be broken by paying 3 month’s interest…then you can go to another lender if you choose.?There will be legal and other costs associated with this option.

This is a very superficial overview, simple designed to show you do have options.?Don’t panic…plan!

I’m Steve Willson, a Mortgage Agent with Mortgage Alliance, licensed in Ontario.?These opinions are mine, and I’d be glad to talk further if you need advice.?You can reach me through stevewillson.ca