As someone who has invested in real estate, you are probably keeping a close eye on interest rates. Not that we can predict when and if interest rates will increase again soon, but it’s important to always be prepared financially in case they do – especially if you have multiple mortgages. A rise in interest rates will impact any loan you have in terms of the interest payments you make to your lender. Aside from mortgages, this can also affect any line of credit or any other loans you may have with variable interest rates or upon renewing a fixed-term mortgage as well. Although a rate increase of one or two percent doesn’t sound significant, it can have a major impact on your finances if you aren’t ready for it. If you are looking to prepare for an increase in interest rates, here are a few ways to do so.
1. Review your debt
Take a close look at your current financial standing. Do you have a lot of outstanding debt? Cut down on expenses and use that money to pay down/pay off debt you owe prior to any possible rate increase. The less debt, the better. If you do decide to start paying off some of your debt, start by paying off the debt you owe with the highest interest rates, that way you are paying back less towards accumulated interest. If necessary, consider consolidating any debt with a higher interest rate with a lender merging multiple debts into one loan with a lower interest rate. Another option would be sitting down with a
mortgage broker or lender and seeing if an increase to your current monthly payments is an option for you to pay off your debt faster. If you do decide to take this route, consider first if you are in the right financial place to do so without putting stress on your other financial obligations such as monthly expenses and savings.
2. Have an emergency fund prepared
It never hurts to have an emergency fund set aside because you may never know when you need it. If it’s possible for you, set up a separate savings account and start an emergency fund that will cover paying the extra if interest rates decide to skyrocket. That way you’ll have money already prepared to help make payments. Again, if necessary and you don’t have a sufficient amount saved before an interest rate increase arrives, you may want to consider taking out a loan with a lower interest rate to pay off different debts like your credit card payments. In doing this you’ll use the money from the loan to pay off your credit cards and other bills, and then you’ll pay back the loan with one payment a month instead of a payment to each debt directly. This will help increase your cash flow to cover the extra cost from the interest rate increase.
3. Talk to a lender or mortgage broker
Before you agree to any type of loan, have your lender or mortgage broker review your rights and responsibilities about your interest rates. Also, have them break down how an interest rate increase would affect your monthly payments so you have a good visual of what your monthly cash flow could be if rates were to increase. Or you can come and see me, and I can show you what your finances would look like if a rate increase were to happen. I, Darren Robinson, can give you the right financial advice on how to prepare for a rate increase whether you own one home or if you are a property investor with multiple mortgages as a seasoned mortgage broker in the Barrie area. If my years of being a professional mortgage broker have taught me anything, it’s that when it comes to your finances, you can never be too safe or too prepared. Let’s get started today by setting up a virtual meeting to take a deeper look at your options and to make a long-term financial plan with an emergency fund built it. Just give me a call at (705) 315-0516 and we’ll make it happen!