Rising Rate Survival Kit
Consolidate any debt you are carrying at the lowest interest rate possible.
When interest rates begin to rise, they will rise on credit cards and other loans as well. Credit cards particularly represent the highest interest cost. The rates available today provide an excellent opportunity to keep your debt load lean and efficient. Whether it is through a major bank, financial institution, or private lender, getting debt off of those credit cards and reducing your overall interest cost is integral to preparing for a higher interest rate environment.
Increase your monthly payment
If you on a variable rate, you have the option of setting your payment as if rates where higher. This means you will be paying more to principal while rates are currently low, and as rates start to rise, the only thing that will change is the amount of principle you are paying. This removes any ‘payment shock’ associated with rising rates, and allows people to plan their month to month finances. Lenders typically allow clients to increase their monthly payment up to 15% per year – this is also an effective strategy to tackle more principle while times are good.
Make the most of your pre-payment privileges.
Every mortgage allows for a certain percentage to be paid as a lump sum, interest free payment per year. This amount is usually between 15 – 20%, and is an excellent way to chip away at the principle. By reducing the amount of principle owing, you are increasing your equity in the property, and giving yourself more room to adjust a payment downward if needed.
Keep an eye on fixed rates
A small bump in prime is not necessarily an indication to run to a fixed rate mortgage, there are usually a number of factors to consider. However, if we continue to see 5 year fixed rates heavily discounted, and the spread between fixed and variable rates begins to narrow, it’s important to be in a position to move to a fixed rate should that be the best decision.
Monitor the market with a Mortgage Professional who doesn’t work for the bank.
The bank earns money from your interest payments. It is in the best interest of the bank for you to pay them the most amount of interest possible. For this reason it makes sense to have a licensed professional who isn’t on the bank’s payroll to monitor your mortgage and the market conditions, helping you to plan a strategy that is in your best interest.