Happy Summer! I hope you’re having a great season and getting outside for fun and relaxation.
At the risk of being a party pooper, I want you to pause and think about your mortgage for a few minutes. And I want you to immediately increase your monthly payments.
Something happened a few weeks ago that every homeowner with a mortgage should consider.
Interest rates increased more than 20 per cent in the span of a couple of weeks. Seriously.
Five-year fixed rate mortgages at some lenders increased from 2.89 per cent to 3.49 per cent in the weeks following an announcement by the head of the US Federal Reserve that it might, possibly, if conditions warrant, at some point in the future, slow down its current $85-billion per month money-printing experiment called Quantitative Easing.
The mere suggestion of the potential end of cheap money caused stock markets to shudder, bond markets to shake and fixed mortgage interest rates to shoot up.
Now admittedly we’ve gone from rock-bottom-can’t-possibly-get-any-lower rates to almost rock-bottom rates. But the degree and speed of the increase is instructive and should serve as a warning that in the next few years rates will likely return to normalized levels in the 5 to 7 per cent range. When your mortgage rate jumps 2 or 3 per cent at renewal the larger monthly payments could seriously pinch your household budget.
So now is a good time for anyone who is paying less than 3.5 per cent to increase their payments to match a 3.5 per cent interest rate. If you have some extra savings that you don’t have a specific plan for, consider using it to make a lump sum payment on your mortgage.
Visit my website at edmontonmortgagebroker.com where you can use mortgage calculators found under the resources tab. You’ll be able to see how increased payments and lump sum payments will help you pay down your mortgage faster.
After all, the best mortgage is the one that’s paid off.