Taking advantage of great low mortgage rates..
Posted on Jul 19, 2012 in Mortgage Market Updates and News
Although the low mortgage payments that come with historically low interest rates are nice, they’re not necessarily the best way to take advantage of these great low rates we’re seeing.
Over time, the 5 year variable rate mortgage has always been looked at as a money saver due to lower interest and the opportunity that lower interest brings to aggressively pay down your mortgage balance. Someone with a 5 year variable rate mortgage at Prime minus .8% (currently 2.2%), would make their mortgage payments based on fixed interest rates (example payments based on 3.5%)
Here’s an example of how this worked:
On a $200,000 mortgage, amortized 25 years, the monthly required payments for 2.2% variable rate mortgage would be $866.33. At the end of a 5 year term the outstanding balance would be $168,242.
On the same mortgage, fixed 3.5% payments would be $998.54/month. If variable rate mortgage was chosen but paid at the fixed payment amount, $132.21 would be applied to principal each month.
At the end of the five year term, assuming prime stayed the same, the outstanding balance would be $159,866. Putting you $8376 ahead on your mortgage.
This same strategy could be applied to mortgage rates. Although it’s nice to have a very inexpensive affordable mortgage payment now, it’s important to think about the future as well. When our current mortgages need to be refinanced at the end of our current terms, it’s likely interest rates won’t be so low. Now’s the time to take advantage of our low interest rates, pay down as much principal as possible to ensure our mortgages are still affordable in 5 years.
If the same strategy is applied with current fixed rates of 3.09% for 5 year fixed rate compared to posted rates (5.24%), or even 10 year rates 3.99%, a large impact can be made.
$200,000 mortgage amortized 25 years at current 5 year fixed 3.09% – $955.75/month – $171,243 owing in 5 years
$200,000 mortgage on 3.09% paid based on 3.99%, 1,050.96/month – $165,077 oustanding in 5 years.
Putting you $6166 further ahead on your mortgage.
To discuss your mortgage and develop a strategy to pay off your mortgage sooner call Sharie Marie Francoeur, Mortgage Professional with TMG The Mortgage Group Canada Inc. Working actively in Port Alberni, Parksville, Nanaimo, Ladysmith, Victoria and everywhere in between:)