We are all enjoying a reprieve from big mortgage payments but what how do we prepare for rising mortgage rates?
Here from Peter Kinch's mail-out is a transcript of the interview between Peter Kinch and Russell Byth that aired Sunday, November 22nd on News 1130
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Russ:
There's been a lot of talk this past week about the inevitable rise in interest rates and its effect on the housing market.
On the line with me is best selling author, Peter Kinch with Dominion Lending Centres. Pete, is the quick recovery and suddenly booming housing market setting us up for another fall?
Peter:
Well Russ, there's certainly that potential, but again we need to keep some perspective. Just a year ago everyone was worried about how much equity they lost and a year later the headlines show a double digit growth in prices.
Russ:
Clearly the housing market recovered faster than most expected. Do you think that was fuelled by the record low interest rates?
Peter:
Well absolutely, that's a major factor. I mean, the Bank of Canada accomplished exactly what it set out to do and that was to stimulate the economy and the housing industry represents a major component of that economy.
Russ:
So here's the question: if low rates spurred the recovery in the first place, could the inevitability of higher rates create a crash in the housing market 5 years from now when all these low rate mortgages come up for renewal?
Peter:
That's a very legitimate concern; but remember, the same people who lowered rates to stimulate the economy will be very careful not to undo their hard work by letting them rise too fast.
Having said that, the prudent thing, for anyone getting a mortgage today, would be to budget for an increase of about 3% upon renewal. So my advice is to take advantage of these current low rates and increase your mortgage payments as much as your budget can afford. That way you will accelerate your debt reduction and when the day comes that you have to renew into a higher rate, you will do so with a lower principal balance.
Russ:
And that will help you keep your payments down. Thanks Pete, some good advice. In the Business Centre, I'm Russell Byth.
There's been a lot of talk this past week about the inevitable rise in interest rates and its effect on the housing market.
On the line with me is best selling author, Peter Kinch with Dominion Lending Centres. Pete, is the quick recovery and suddenly booming housing market setting us up for another fall?
Peter:
Well Russ, there's certainly that potential, but again we need to keep some perspective. Just a year ago everyone was worried about how much equity they lost and a year later the headlines show a double digit growth in prices.
Russ:
Clearly the housing market recovered faster than most expected. Do you think that was fuelled by the record low interest rates?
Peter:
Well absolutely, that's a major factor. I mean, the Bank of Canada accomplished exactly what it set out to do and that was to stimulate the economy and the housing industry represents a major component of that economy.
Russ:
So here's the question: if low rates spurred the recovery in the first place, could the inevitability of higher rates create a crash in the housing market 5 years from now when all these low rate mortgages come up for renewal?
Peter:
That's a very legitimate concern; but remember, the same people who lowered rates to stimulate the economy will be very careful not to undo their hard work by letting them rise too fast.
Having said that, the prudent thing, for anyone getting a mortgage today, would be to budget for an increase of about 3% upon renewal. So my advice is to take advantage of these current low rates and increase your mortgage payments as much as your budget can afford. That way you will accelerate your debt reduction and when the day comes that you have to renew into a higher rate, you will do so with a lower principal balance.
Russ:
And that will help you keep your payments down. Thanks Pete, some good advice. In the Business Centre, I'm Russell Byth.
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