Are you like one in five Canadians? A recent survey conducted by the Bank of Montreal concluded that 20% of Canadian households would be in some financial hot water if the interest rates rose by 2%. That is a significantly high number of Canadians who could potentially lose their home. Could you imagine how much Barrie would change if 20% of the community lost their home? As a mortgage broker, it’s a nightmare situation I don’t want to entertain.
The frightening part about this stat is that a 2% increase in interest rates isn’t that far out of the question. It was 25 years ago when interest rates were well over 21%. I can say with some certainty, the majority of the country would be in a financial crisis if the rates were that high today.
So how does a 2% increase affect you? Could you afford a jump like that? Let’s assume that the average homeowner in Barrie carries a mortgage of around $250,000. This would equate to a monthly mortgage payment of $1300.00 on a 5 year mortgage at 2.99%. It’s a fairly reasonable amount and obviously quite manageable for most of us who own homes.
Now let’s see what would happen if interest rates increase.
If the interest rate were to increase to 4.99% that same mortgage payment on a $250,000 mortgage would jump to nearly $1500.00 each month or about $2400.00 per year. A ‘lucky’ number of us would have to say goodbye to a family vacation. Most people would have to max out credit cards and fall into a great deal of debt.
Could you find another $200.00 each month? Most of us are just getting by as it is.
Another interesting point worth mentioning is that one in three Canadians has opted for a variable mortgage – meaning the rates are always in flux. There are pro’s and con’s to fixed versus variable rates. The real question is; what works for you. A mortgage broker could help answer your questions and help you find the right lenders who could offer some pretty incredible rates.
If you would like to read the original article it can be found here:http://business.financialpost.com/2012/03/28/many-pinched-in-mortgage-rate-stress-tests/?__lsa=c057-7e1e