Mortgage Calculator: See How Rising Interest Rates Affect Your Payments
Update: The Bank of Canada (BoC) has just raised its key interest rate for the second time this year, from 0.75% to 1%. The move follows a similar increase in July, when the Bank raised rates from 0.5% to 0.75%.
Mortgages are by far the biggest source of debt for Canadian families, so how will this affect them?
Global News has partnered with rate comparison site RateHub to provide a calculator that will show you how your monthly mortgage payments will change as interest rates rise. Please refer to the operating instructions below. (For more mortgage tools, you can visit RateHub.ca’s Mortgage Payment Calculator or the Mortgage Affordability Calculator.)
READ MORE: What You Need To Know About Mortgages If Interest Rates Rise
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How it works
General Instructions: To use this calculator, you need to know your current interest rate, amortization period, mortgage payment amount, and payment frequency.
Amortization period – this is the time it will take you to pay off your mortgage in full. In Canada, most mortgages have a 25-year amortization. This is different from the length of your mortgage, the length of time you commit to a specific rate, the lender, and the loan terms. The typical term of a mortgage loan in Canada is 5 years.
Payment frequency – most people pay their mortgage once a month. âBi-weeklyâ means you pay twice a month, for a total of 24 annual payments. âBi-weeklyâ means you pay every two weeks, for a total of 26 payments per year. “Accelerated Bi-Weekly” means you pay the same amount you would pay with a bi-weekly option, but make 26 payments rather than 24 per year, which allows you to pay off your mortgage faster and save on interest.
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Variable rate mortgages: If you have an adjustable rate mortgage, this calculator tells you how your payments will change when the BoC increases rates. Today, rates are up 0.25 percentage points. Many economists expect the central bank to raise rates by one percentage point (up to 1.5%) by the end of 2018.
Lenders do not always accurately reflect the BoC. For example, the last time the central bank made a decision, in July 2015, it cut rates by 0.25 percentage points, but mortgage lenders only cut variable rate mortgages by 0, 15 percentage point. “With an increase, however, it is highly likely that the full amount will pass through to consumers,” said James Laird, co-founder of RateHub.ca and president of CanWise Financial. This is the working hypothesis of this calculator.
For long-awaited interest rate changes, such as today’s hike, lenders typically adjust their variable rates within hours of the BoC’s announcement, Laird said. Holders of variable rate mortgages, in other words, will likely be affected immediately.
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Fixed rate mortgages: Most Canadians have fixed rate mortgages where interest rates remain stable throughout the life of the loan. If that’s your case, you can always use this calculator to get an idea of ââhow your payments might change once your mortgage is renewed. However, keep in mind that if you have a five-year mortgage that will be renewed soon, the rates today could still be lower than the rate you locked in five years ago.
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Potential buyers: If you’ve been considering a certain fixed mortgage rate over the past few weeks, today’s rising interest rates might not affect you. Most fixed rates have already risen in anticipation of today’s hike, widely anticipated by the markets. In all likelihood, the fares you’ve seen recently are the fares you’ll be able to access in a moment. However, you can still use the calculator to see what your monthly payments might look like if you were to get a mortgage after the BoC hiked rates again, which could happen as early as this fall.
READ MORE: Home prices will remain stable across Canada in 2018, RBC says – is this the new normal?
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