With existing Canadian home sales surging 76 per cent, BMO takes a look at how to avoid the challenges that come with higher interest rates
TORONTO, Dec. 18 /CNW/ - The housing market in Canada has seen existing Canadian home sales surge 76 per cent from their January lows. Not only that, in November, existing home prices spiked 19 per cent above year-ago levels, the second fastest clip in two decades. With record low interest rates, more people than ever are looking to purchase a home. However, experts are predicting that interest rates will rise in 2010.
"We expect the Bank of Canada's overnight rate target to climb from 0.25 per cent beginning in July 2010 to a more neutral 4.25 per cent in mid-2012. In turn, consumers can also expect mortgage rates to increase," said Sal Guatieri, Senior Economist, BMO Capital Markets. "As long as borrowers keep in mind that renewal rates will likely be substantially higher, today's ultra-low borrowing costs represent a unique opportunity to purchase a property."
Top Tips to Consider:
1) Make sure you can afford what you signed-up for:
- Stress test your financial budget using a mortgage payment based
on a higher interest rate
- For example, a customer looking to renew a $100,000 mortgage
currently priced at 2.25 per cent could expect their monthly
mortgage payment to increase by $100/month if rates were to
increase by 2 per cent
2) Make pre-payments when you can:
- Pay weekly or bi-weekly instead of monthly
- Take advantage of the 20+20 prepayment privileges.
3) Always make sure you save up for a rainy day:
- If you are up to your maximum in debt, you may not be well
prepared for the leaky roof along the way
4) Think carefully about fixed vs. variable:
- While variable rates mortgages have been a winning strategy over
the long-term, fixed rate mortgages come with the peace of mind
from being insulated against rate increases and knowing how much
of your mortgage you will have paid down at the end of your term
5) In today's heated market, do not get locked into a bidding war that
pushes your mortgage payments outside your comfort zone
"Think about not only what your financial needs are today, but a year from now, three years from now, five years from now so you can plan accordingly," said Jane Yuen, Senior Manager, Mortgages, Bank of Montreal. "Always be on the lookout for ways to pay yourself first. You could be mortgage-free faster and save tens of thousands of dollars in interest costs by simply changing your mortgage payment frequency from monthly to bi-weekly. Stop by one of our branches or contact one of our mobile mortgage specialists who can help bring clarity to your personal financial needs and find a solution that best suits you."
SOURCE BMO BANK OF MONTREAL
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