What happens when interest rates double and my fixed mortgage is up for renewal!

Triggered last spring by the pandemic, economic uncertainty caused interest rates to dip to all-time lows. Many Canadian homeowners now have fixed-rate mortgages locked in, but what happens when rates start to rise or even double?

When people think that mortgage rates have doubled they immediately think that payments have increased by 100%. This is not the case.

In the below vlog I break down the math on how your payment would change if you needed to renew and interest rates have doubled.

It's unlikely that rates are going to double!

Most economic analysts are confident that interest rates will not increase in the foreseeable future. Even though the scenario of rates doubling is unlikely let's discuss what would happen to your payment per $100,000 borrowed if it did.

Each $100,000 in mortgage money will create a $423/month mortgage payment.

To come up with this calculation I am using the following numbers:

• for each $100,000 borrowed

• Amortization: 25 Years

• Term: 5 Years

• Rate: 2%

After the 5 year term, each $100,000 originally borrowed now has a balance of $83,770. Continuing repayment on the original amortization to calculate the payment for the second term we will now use these numbers:

• $83,770 for each $100,000 originally borrowed

• Amortization 20 Years

• Term: 5 Years

• Rate 4%

As mentioned above each $100,000 originally borrowed is now $83,770 at 4%. This makes your payment $605/month. An increase of $180 per $100,000 originally borrowed.

The actual mortgage payment increased by 30%. It did not double.

If you can't afford an increase you still have options!

Now a 30% increase in payment is huge, but it is not a full 100%. If you are unable to afford your payments you do have options. Among these options, you could look at refinancing to increase your amortization period back up to 25 or even 30 years to lower your payment.

If you have any questions about this or any other mortgage-related topic, please feel free to reach out to me anytime. I love to talk mortgages!

Book a call with me directly here!