Tuesday, January 18, 2011

Interest Rates and Your Mortgage Payment

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Canadians are being warned they need to look at the levels of debt they are carrying because of the concern that even small interest rate increases could mean many could no longer afford to make their payments.

The above chart clearly shows the difference a 1% increase in mortgage rates would make on your monthly mortgage payment. For example if you are carrying a $200,000 mortgage and the rate went up by 1% your monthly payment would increase by $122.26.

It should be noted the above numbers are for interest and principle repayment only and does not include any local taxes or user fees you would also be paying in your home.

HOW HIGH CAN MORTGAGE RATES GO?

With all the Bank of Canada and Government of Canada and IMF manipulation of interest rates that is a question likely no one can answer. But a few examples from Canadian history could be considered:

In 1980 mortgage rates nearly hit 19% which would mean a $100,000 mortgage on the above terms would need a monthly payment of a whopping $1530.68 for principle and interest only.

As recently as 2000 rates of nearly 9% were common. This would require a monthly mortgage payment of $792.84 for a $100,000 mortgage compared to the $533.70 payment needed at the current level of 5%.

It is easy to see just how quickly a few points increase in interest rates can make the difference between making your mortgage payment or not making it. I remember some of the stories from 1980 when people who had been buying their home for years could no longer qualify to make the payments needed for a 19% mortgage and even though they had equity in their homes, they still lost them for lack of refinancing.

Comment: To this untrained fellow, housing and housing prices have undergone some serious artificial inflation due to interference by those in charge. Low, low interest rates, have meant more people can make the payments, more people qualifying puts more demand on the market for houses, and so the prices go up but not because the house is really WORTH anymore, it is simply because the payments have been manipulated to allow more people to buy a home. That by itself would be good if good old greed had not driven prices through the roof.

allvoices

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