Most of us are affected in one way or another by inflation, the rising cost of living, and increasing interest rates.
And for many, rising interest is most noticeable when making monthly mortgage repayments. That’s why using a mortgage loan calculator to help avoid surprises can be so important.
If you’re concerned about the current impact of inflation and interest rates on your mortgage, consider these ways to handle rising mortgage rates.
Current Mortgage Rates
The US Federal Reserve has hiked interest rates to 2.5%. And in Canada, the rate is currently 2.5% with an expected hike of 0.75% come September.
The purpose of these significant interest rate increases is to slow down runaway inflation as soon as possible, without triggering a recession.
The current increase has been made over the space of only a few months and is the most aggressive increase in recent history. Typically, a rate hike takes about six months for the impact to be felt in the economy.
Central banks across the globe have been accused of taking too long to act on rising inflation. This was in part due to the fact that many thought inflation increases would be temporary.
But, unfortunately, it looks like inflation will continue to increase longer than expected. So far, the economy is absorbing the rate increases relatively well, with unemployment rates at a record low.
However, inflation is still making an impact on the economy, especially in real estate. House and property sales have slowed as interest rates and cost-of-living increase.
Dealing With Rising Interest Rates
Mortgage rates have more than doubled in under a year, and that means larger monthly payments. For example, an increase of 1.75% represents an additional $91 CAD per month for a $310,000 mortgage.
That’s why it’s advisable for those that are saving for a house to re-evaluate the market and the price they are willing to pay for a house. When considering the current market, make sure to also consider potential job losses due to a recession.
A more positive benefit to rising mortgage rates, however, is that it fuels a decrease in property and housing prices. That potentially makes home ownership more accessible, as a lower down payment is needed.
On the other hand, if you already have a property and are on a variable-rate mortgage, it means adjusting your budget to find more money, an average of $80 CAD a month, currently.
More homeowners are opting for fixed-rate mortgages in an effort to stabilize their finances, locking in the best rate as of the day they apply.
With rates being predicted to continue rising, locking in a fixed rate right now is a simple way to ensure your payment will be as low as possible in the future.
You may want to get mortgage advice by checking the remortgage options you have using Trussle’s online remortgage calculator.
And remember that remortgaging your property has benefits beyond finding the best current interest rate. It also gives you a level of stability in a potentially volatile economic situation.
Given that fixed mortgage rates are around 5% currently, and that variable rates will very likely rise above this level in coming months, you may also want to opt for a one-year fixed term with lower interest.
Doing this will let you can save money currently, while still having the flexibility to choose another mortgage option down the line.
It’s difficult to predict what will happen in the long term when it comes to housing prices, inflation, and interest rates. But the last thing central banks want is for rates to rise to the point of a recession.
So, take your time to do a bit of research, calculate how much extra you have to spend, and decide whether buying a home, remortgaging your house, or keeping your current mortgage is the right choice for you.