Warning! Low Rates May be Harmful.

Low rates may be harmful to your financial future.

As November slips away we are seeing a few exciting things.  It’s not snowing!!  The housing market is soaring and last but not least interest rates are down just slightly.

All in all looks like it’s going to be a Merry Christmas!

I do need to add a caution to all the good news though.  Many buyers are taking it to the max with their purchases prices based on the great rates.  Some are even leaning to variable rate mortgages, much to the dismay of the economists.

Those who are opting for variable rates should be aware.  Canadian economists are predicting that rates will rise sharply beginning mid 2010.  If a borrower wishes to lock in their mortgage from a variable rate to a fixed rate they could see heavy increases in their payments over the remaining term.   This could cause undo financial pressure.

Assuming you lock-in when rates begin to rise and your lender will give you 4.49% on a  5 yr fixed rate mortgage.  Your monthly payments will go up by $253.91 monthly.

You would need an extra $3046.92 per year to make the increased payments.

$200,000 mortgage, 30 yr Amortization @ 4.49% Fixed = $1007.27

Currently you could be guaranteed 3.99% on the same $200,000 and pay $949.91 for 5 yrs.  Is it worth the gamble when it’s obvious rates have nowhere to go but up in 2010?

The old saying “Penny-wise, Pound-foolish may hold the key making the decision on which mortgage option is best for you in this economic climate.