The Toronto star says yesterday’s rate hike is “bearable” and that only 21% of Canadians have variable rate mortgages. Yet, it you’re on a tight budget variable rate increases can sting.
Take a single 1/4 point rate hike for instance. If you have a $300,000 mortgage, amortized over 25 years, a 0.25% hike costs you about $43 more a month. What’s more, you’ll pay $3611 more in interest over 5 years while repaying $1018 less in principle.
If the Bank of Canada raises 1/2 point, double those numbers.
The short of it is this. If you want the benefits of a variable (i.e. a lower initial rate and the chance to benefit from rate declines) be sure you can handle the payments if variable rates jump 1% more above today’s 5.25%-5.35%.
Otherwise consider a fixed-rate mortgage instead.
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