Rates Going Up will You still be able to buy?
Guest post by Len Lane of Brokers for Life, Dominion Lending Centres
Lately we’ve seen projections that rates will begin to increase through the next 15 months. RBC has projections that show the 5 year bond will increase from the current .65% to 1.7% that 1.05% increase will equate to these numbers.
The 5 year mortgage rate on average is set by most lenders at the bond rate and adding what some call their comfort margin of 1.8%. So by today’s standards that rate would be 2.45% which pretty close to what we see on average somewhere between 2.39% and 2.49%. Take the projected increase in the bond to 1.7% and add the 1.8% then we are now at 3.5% so almost a full percent higher. Doesn’t sound like much does it, let’s look at the numbers to see what difference per month it makes in your payment.
With a household purchase price of $500,000, at today’s rate of 2.45% on a 25 year amortization with a $350 / month car payment and no other debt you would need to be making $85,000 a year. Your monthly payment would be $2,195 / month plus taxes.
Take the same scenario projected to happen a year from now and rates at 3.45% your payment now is $2,450 plus taxes and your income now needs to be $95,000 a year. I don’t know many people in today’s economy getting a $10,000 dollar raise. These numbers do include CMHC fees and have been calculated using the filogix program, they also take into consideration average credit scores.
If you’re waiting another year to buy you may be surprised that the rates have increased to the point that you no longer qualify for the house of your dreams. Talk to a mortgage broker today about your different down payment options you may be able to get into that new home before the rates increase and lock in for a five year term and today’s excellent rates.