Variable Rate Impact

bills 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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