We are at the bottom of mortgage interest rates and it is time to consider fixing your rate to save money and time off of your amortization. The Bank of Canada promised that we would have these low levels until June and June is only a few months away. We don’t know how fast interest rates will rise but we do know they will start to rise from here. The economy has shown signs that it is improving, and the major banks started raising fixed rates. It just might be time to fix.
If you do choose to lock in, be sure to shop around and get the best rate. If you choose to use a mortgage broker you will be locking in for 5 years as low as 3.49% as of today. Even BMO has advertised a rate of 3.75% and it gets cheaper if you have other products with the bank.
1. Set your payments from monthly to bi-weekly–or even better weekly. Bi-weekly payment means you make one extra payment per year compared to monthly. Over the amortization time of your mortgage these extra payments will save you thousands.
2. Round up your payments. If your bi-weekly payments are $829.68, for example, round them up to $900. The extra $70.32 bi-weekly will save you even more over the amortization of your mortgage.
It is so hard to step away from your prime minus variable rates when they are so low. I had a rate of prime -.85 before I sold my place. If you do decide to stick to your variable rate and hope that interest rates climb slowly over the next few years, increase your payments so that you are making the payments that you would be in a five year fixed. There are two advantages to this:
1. You will be paying down your principal very quickly, which will equal less principal to pay back when rates go back up. It will save you bundles in the long run.
2. You’ll also be used to the payments at a higher interest rate. When you need to renew or decide to go with a fixed rate, you’ll have a few years of already making payments at that higher rate.
Try out some of the mortgage calculators online like the one below to see how much interest you save with the different options, along with how many years you’ll “bump off” your amortization, instead of it bumping you off. And mortgage free years are years that you can spend that mortgage money on your extra special life!
Have a great week,