Buying sooner pays off as mortgage rates begin their slow but inevitable climb
I can remember when mortgage rates sat at 21%. That was back in 1981. (Of course, I was only an infant at the time. ) Compared with those difficult days, recent news of a mere 0.60% increase in the big banks’ posted rate seems almost cute.
But, while the overall outlook is good for 2013 and 2014, too much complacency can cost you hard-earned dollars.
You don’t have to be a veteran market-watcher to know that Canada has been enjoying historically low mortgage rates: discounted rates have been hovering around 3%. (That’s for a five-year fixed rate mortgage.) Thousands of first-time homebuyers have jumped at the chance to lock into rates like these.
But, from the Governor of the Bank of Canada to the heads of the big banks, financial experts agree that interest rates cannot remain so extraordinarily low. BMO Capital Markets Senior Economist Sal Guatieri has suggested that a “normalized” mortgage would be closer to 4.99%.Now, over the past few weeks, it seems the big banks have begun the slow but inevitable mortgage rate hike. How might it affect you? Let’s do some simple math:
Let’s say you’re looking at purchasing a $250,000 condominium. As of press time, the posted rate of several of the big banks is 3.69%. Lock in now, and (assuming 25-year amortization ), you’ll pay $1,273 monthly.
If you wait till rates normalize at 4.99%? You’re looking at $1,452 monthly – that’s a difference of $179 a month. Over a five year term, you’re losing $10,740. I don’t have to tell you what you could do with that money.
But perhaps more significantly, an higher rate will decrease the amount you’re approved for – by tens of thousands of dollars. Play around with an online mortgage approval calculator: you’ll be amazed. With an income of $64,000 and a down payment of $20,000, today’s mortgage rate will get you approved for $252,000. At 4.99%, that approval suddenly drops to $228,000. That may mean the difference between buying the home you love and settling for one you can afford.
I’m all for buying the home you love.
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