will have no effect on your monthly payments or interest expense until your actual renewal date. Also on the upside, this gives you time to prepare for the potential of higher interest rates.
What 0.25% means to you will ultimately be much the same as the mathematics above. The risk is that instead of a slow, gradual rise, you may be in for a full 1% interest rate increase by the time your renewal rolls around. But that is OK, you have time on your side and your rate is fixed for now.
Key point; the mortgage balance you are renewing will be (in most cases significantly) lower than your original balance and thus the impact of an interest rate hike is that much less dramatic.
For example, a $300,000 mortgage on a 30 year amortization, taken at 2.59% today will have an ending balance five years from now of $264,613.00. (Increase your payments each year and it will be lower still)
Renewing $264,613 at an interest rate 1% higher would increase the payment from $1,197.27 to $1,333.74.
Increasing your payment by 0.25% ($39.00 per month) each year would have you ahead of that curve.
In any event, this is an 11.5% increase in your payment. Five years from now, odds are your household income will have risen by at least $136.47.
This is not to say an increase of 1% is not meaningful, but with five years to prepare, it need not be.
In the event that interest rates continue to defy journalists’ and various analysts’ expectations, as they have done for the past six years, and remain low – while you increase your payment incrementally each year, then come renewal, you will truly be sitting in a plum position. Your mortgage payment amplified the point that your effective amortization will have reduced by several years and your mortgage balance will be decreasing at a more rapid pace than any mortgage balance has in the past 50 years.
Call The Angela Calla Mortgage Team to talk about ways to take advantage of 50 year record low interest rates. 604-802-3983 or email@example.com