Yikes! Most of us will cringe at the idea of rising interest rates and their effect on our ability to afford the mortgage payments that some Canadians are already struggling to make. Our homes are the single biggest financial investment that most of us will ever make.
For the first time since July 2015, the Bank of Canada has increased the interest rate from .5% up to .75%, but do you know what that means for your mortgage payment? RateHub is making it easy to determine what your new payment will look like with a mortgage increase calculator that takes into account this interest rate hike.
In order to gain some insight you’ll need to gather some current mortgage information. If you’re not sure what each piece of information means, we’ve outlined some helpful definitions below.
Amortization period: most mortgages in this country have a 25 year amortization period. Basically your amortization amount is how many years it will take for you to pay off the full balance of your mortgage in its entirety.
Mortgage term: often confused with the amortization period, this is actually the term you’ve agreed with the bank to commit to a certain interest rate. It also includes the particulars of your loan conditions. Usually homeowners set up a 5 year mortgage term, but you can also find mortgage term offers of 2 years, 2.5 years, 4 years, and more.
Payment frequency: this is the number of times that you make mortgage payments. Although most homeowners set their payments to come out once a month from their account, there are a number of options. Bi-weekly means that you make 26 payments a year (every two weeks). Semi-monthly means that your payments come out twice a month, equalling up to a total of 24 payments a year, and “accelerated bi-weekly” means that you pay 26 times a year, but each payment is higher than it would be in a bi-weekly set up, meaning that your mortgage is paid off sooner rather than later.
Variable rate mortgage: in this type of mortgage, your rate fluctuates with the interest rate, meaning that this calculator will be especially handy in helping you to prepare for your new debit amount. Most often variable rate mortgage holders will be immediately affected by an increase in the interest rate.
Fixed rate mortgage: for this type of mortgage, your rate is “locked in” for a pre determined period of time. This means that you have that much grace period before your mortgage rate is affected by the interest rate hike. Those with fixed rate mortgages can still benefit from using the calculator, especially if it means that you have time to prepare a nest egg to offset the increase in your debit amounts.
Once you’ve got all of your numbers, simply plug them into the calculator to see what your new debits are going to look like.