With mortgage rates at an all-time low, locking into a mortgage is a tempting commitment. However, these low rates have experts cautioning homeowners: can you still afford your mortgage if rates were to rise?
Stress-testing your mortgage is a smart way for home buyers to prepare for the future in the event that mortgage rates go up. Before locking in to a mortgage, home owners should calculate their mortgage payments at a higher rate to see how much their mortgage may cost in the event rates were to rise in the future.
“When homeowners stress test their mortgage at different rates, they have a better understanding of what they can and can’t afford,” says Wade Stayzer, Vice President, Retail and Investment Services at Meridian, Ontario’s largest credit union. “It’s a simple and quick test that can save homeowners from future stress and worry.”
Meridian offers the following tips to help homeowners stress test their mortgage:
Test at 1 to 2 per cent higher than your current rate:
Financial advisors recommend stress testing your mortgage at 1 to 2 per cent higher than your current rate. Many financial institutions offer online mortgage calculators that are designed to help calculate your mortgage at different rates.
Not just for first-time homeowners:
Stress-testing your mortgage isn’t just limited to first-time homebuyers. Current homeowners who are looking to renew their mortgages can benefit from this exercise too. “While you can’t predict the future, you can at least prepare for it,” says Stayzer. “This is a better-safe-than-sorry approach to ensure you can comfortably afford your home now and ten years from now.”
Double check your results with a mortgage specialist:
Mortgage specialists are well versed in the financial implications associated with home ownership and can help you stress-test your mortgage but also help find ways to pay down your mortgage faster.
To learn more about stress-testing your mortgage visit www.meridiancu.ca.
Sue Bennison | Meridian Credit Union