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.
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