Monday, December 14, 2009

More from Peter Kinch

This is from Peter Kinch's email newsletter.
In case you missed it, the following is a copy of the interview between Peter Kinch and Russell Byth that aired Sunday, December 13 on News 1130
Well, as expected, The Bank of Canada held steady on their rates last week, keeping the historically low Prime rate unchanged at 2.25%. Now given that these are so-called emergency rates, it is just a matter of time before they start to rise. On the line with me is best-selling author and Mortgage Expert, Peter Kinch with Dominion Lending; Pete, what advice do you have for Canadian families faced with the inevitability of higher rates in the future?

Well Russ, everyone should start budgeting for an increase in rates. You know, it's a well documented fact that the Bank of Canada is using these low interest rates to kick-start the economy and their goal is to get inflation back up to 2% but as soon as they feel that they are at or near that level, rates will definitely start to rise. It's not a matter of if, but when.

So if I'm a consumer right now either thinking of buying a house or a home owner possibly looking to renew my mortgage, what should I be considering in the New Year?

Well, the first thing I would do is sit down and draft up a family budget - especially with Christmas coming up and all the expenses that go with it. In your budget, figure out how much you can afford to increase your mortgage payments by. If you accelerate your current mortgage payment, you will accomplish two things:

  1. You will have increased the amount of money that is applied directly to your principal balance, so that when the time does come that your mortgage is up for renewal and the rates are higher, you'll be renewing with a lower principal balance and as such, your payments may not change much.
  2. Increasing your payments today will allow you to adjust your current budget so that you will not experience 'payment shock' a year or two from now when the inevitability of renewing into a higher rate actually happens.

Thanks Pete, some good advice to follow. In the Business Centre, I'm Russell Byth.

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