Protect yourself from rising mortgage rates. Stress-proof your mortgage!

by Nadine - Branch Manager

With interest rates at near or record setting lows, buying a home for as much as you qualify for may be very tempting, but it may have some risk. It is important to keep in mind that although interest rates are low now, there may be an increase in interest rates when your mortgage comes up for renewal.

Let's take a look at an example. If you have a $200,000 mortgage and have a 5 year fixed rate of 4% and you amortize your mortgage over 25 years - your monthly payment would be approximately $1052. If in 5 years the same 5 year fixed rate is offered at 6% your payment based on the remaining 20 years amortization would be approx $1425 and if interest rates were as high as 7% your payment would be $1538 per month.

Be honest in deciding what you can afford and whether a future rate change will allow you to maintain your current lifestyle. While small changes to your budget may be easily absorbed by an expected increase in your wages or some simple cost cutting, a larger change needs to be considered especially if you are planning to increase the size of your family or to take on other financial obligations.

Owning a home is a great way to grow your net worth. However, make sure you consider the possible impact of having to renew your mortgage at a higher interest rate at the end of your term.

Take a look at our online Mortgage Payment Calculator, which allows you to input any fixed or variable interest rate to determine how interest rates impact mortgage payments.

RBC is committed to helping our clients make the right choices to meet their needs. Talk to an RBC Mortgage Specialist to review your options when looking to purchase a new home or refinance an existing one.

Read more at the RBC Mortgage Advice Centre.

Buying a home? Things to consider that may save you money.

Buying a new home is very exciting event and likely one of your biggest financial investments.

Before you buy your home, consider if the home needs repairs, or is a higher insurance risk. You may be able to negotiate a lower purchase price, based on anticipated expenses.

For example, some things to consider are...

• Older homes with aluminum, or knob and tube wiring could be considered a fire risk and can increase your insurance rates.
• A home with oil heating can be an environmental liability risk.
• Both of these things can be updated to reduce your insurance costs, but they may be expensive and should be factored into your final costs.
• Another consideration is whether the home you want to purchase has a history of water damage. Certain areas are known for flooding and sewer back-ups which could increase your insurance rates, so you may want to adjust the purchase price accordingly.
• Before you make your final decision, be aware and ask questions, what you learn could help you save money and ensure you pay the right price for your home.

Read more at the RBC Mortgage Advice Centre.

Consider more than rates when renewing your mortgage

So it's time to renew your mortgage! Chances are, your circumstances have changed since you started your last mortgage term. Renewal is a great time to revisit your financial goals, figure out how your mortgage payments fit into your budget, and find a mortgage option that works best for you.

Don't sign up for the same type of mortgage that you had before without a review of your circumstances and the options available to you.

The first thing to consider is whether you prefer a fixed rate or variable rate term. As you may know, a fixed rate provides you with the security of knowing what your interest rate will be for the term of your mortgage (for example 5 years).

A variable rate term will fluctuate with the prime rate, but offers a greater chance of saving on interest costs over time.

Understanding your comfort level with fluctuating rates will help you determine what's best for you.

Another point to consider is your amortization - or length of time it will take you to pay off your mortgage.If you have taken on additional expenses you may wish to decrease the amount of your monthly payment. This can be done by increasing your amortization.

However, be aware that this will increase your overall costs because your mortgage will take longer to payoff. If your cashflow has improved since your last mortgage term, you may want shorten your amortization. This creates a higher monthly payment, but reduces your overall interest costs because you pay off your mortgage faster.

If the interest rate for your new term is lower than your previous rate, by keeping your regular payments the same, you will reduce your amortization, without having an impact on your budget.

Too many Canadians just look at the rate when the real secret to saving money at renewal time is to explore term, amortization, payment frequency and even pre-payment options.

Revisiting your financial picture and your future goals makes sense at renewal. By doing so you will be able to make any necessary adjustments to your mortgage that will allow you to live comfortably today while preparing for your future.

Thanks to Matthew, Account Manager, for the information. You can read the entire article at the RBC Advice Centre.

Building Your Own Home (Construction Mortgages)

An RBC Royal Bank^® construction mortgage¹ can provide the financing you need to create the custom home you want.

Many Canadians are choosing to build custom homes with special features to suit their lifestyles and personal tastes. While building your own home can be a creative and exciting experience, it can also present some complicated financial challenges.

Here’s where your RBC Royal Bank^® mortgage specialist comes in. With an in-depth knowledge of construction mortgages, we can give you the support you need from start to finish to guide you through the process and explain all the important facts you need to know, including:

• Designing your home plans with an architect
• Arranging a construction mortgage
• Managing your home construction costs
• Hiring a general contractor
• Obtaining building permits
• Constructing your home

Simple, efficient and effective

An RBC Royal Bank construction mortgage can help you finance the cost to purchase that perfect building lot, as well as the construction costs to build your dream home. Whether you already own your lot or are still on the look-out for that ideal location, an RBC Royal Bank mortgage specialist can help.

1) Offered by Royal Bank of Canada and subject to its lending criteria.

Read More at the RBC Advice Centre.