This blog is specifically for those in a fixed rate mortgage. When you take a fixed rate mortgage, you lock in your rate for the term of that mortgage. When your term runs out, we call that your renewal or maturity date, at which point you negotiate the next term. Rates have recently been on the move up from their historic lows. If you have a fixed mortgage, you are very likely going to be renewing into a rate higher than your previous mortgage term.

There has been lots of news about interest rates being on the rise. And while 5-year fixed rates have moved up from their historic lows last year of around 2.5%, they are still very low at just under 3.5% (insured mortgage rates). Even as recently as 2007, the rate on a 5-year term was around 6%. If the trajectory of rates continues, you should understand how your rate will impact the carrying costs on your home.

EXAMPLE

A $350,000 mortgage amortized over 25 years currently at 2.5% has a monthly payment of $1,568.

While we cannot know what rates will be over the next couple of years, here are monthly payments on the same mortgage at various rates so you can get a sense of what the impact would be on monthly payments if you end up renewing into a higher rate over the coming years:

3% = $1,656

4% = $1,841

5% = $2,035

6% = $2,239

Worried? Here Are Things You Can Do

You can't control the mortgage market, but you can do some things to better prepare and handle your costs in a higher interest rate environment:

• Bump payments up now - this will reduce the impact of the higher rates later because it will be on a lower balance and gets you used to paying a bit more.

• Eliminate or reduce other debts - if you focus on reducing debt, particularly high-interest debt like credit cards, it will leave you with more cash flow each month to better handle higher mortgage payments.

• Refinance to re-amortize - you may have the option of refinancing your mortgage to push out your amortization and therefore lower your payments. This will increase how long you have the mortgage and the overall interest you pay, but it is an option to consider if you are struggling to maintain payments.

• Downsize - if it is a possibility for you, you could choose to downsize to a smaller property to reduce your monthly housing costs.

• Get in early on renewals and pre-approvals - rates can be held for 4 months so being on top of things to get rate holds can save some big bucks in an increasing rate environment.

Contact me early on if you have a renewal coming up or if you are concerned about handling the increasing payments on your mortgage. We can discuss your options to see if you would benefit from restructuring your mortgage. Have a plan and feel prepared.