Interest rates are rising fast, if you’re recently looking to buy a home, now may be the perfect time to do so but rising interest rates may make it more challenging than ever before and in this article, we’ll take a look at what rbc mortgage rates winnipeg mean for homeowners and mortgage lenders, as well as tips on how you can keep your monthly mortgage payments affordable even when interest rates rise.
What is the interest rate?
When you obtain a mortgage, you agree to repay the lender with a certain sum of money, the lender offers to give you interest in return for this loan, and your total interest obligation is determined by adding interest to the amount you borrowed; simple interest and compound interest are the two different forms of interest rates- the sum billed annually is referred to as a basic interest rate.
When does the interest rate go up?
Interest rates grow whenever the cost of borrowing money increases, so lenders must raise their rates when this happens to boost their profits; it’s crucial to remember that a variety of factors affect when interest rates increase when they believe the economy is strong and they can expect to see a healthy return on their investments, lenders may decide to raise interest rates, for instance, as a signal that they anticipate the economy to grow more quickly in 2017, the Federal Reserve increased interest rates in December 2016, and when inflation occurs, lenders are compelled to do the same to retain a profit.
How does an interest rate increase happen?
A floating rate is the most typical formula for determining interest rates with this approach, the lender will determine the interest rate based on how much they’re willing to give back on a specific sum of money, an interest payment of $50,000 would be required from the lender for a loan of $500,000 at a 5% interest rate, for instance, and your interest rate will rise in tandem with every time that your mortgage balance does- a 30% down payment will reduce your mortgage debt but raise your interest rate.
Strategies for keeping mortgage payments affordable
- Shop for a lower interest rate – It’s important to remember that you have many options when it comes to finding a mortgage rate, you don’t have to go with the highest rate. You can shop around, find a rate that’s lower than the one you currently have, and still be able to afford your monthly payments.
- Increase your monthly mortgage payment – longer loan terms result in lower monthly payments, making them easier to afford even if interest rates climb.
- Consider extending your mortgage – if you’re able to extend your mortgage by two or three years, you’ll get to pay less interest, because the amount of time you have to pay off the loan will also increase.
- Shop for a mortgage that has no early pay-off penalties – some mortgage providers have no early payment penalties, so you can make your monthly payment early.
- Consider a home equity loan – you can also use your home equity loan to pay off your mortgage and this is a good option if you want to lock in a certain interest rate.
- Add an extra payment to your mortgage – you’ll pay less interest if you can make extra mortgage payments; in some situations, this can reduce your interest rate by as much as 0.50 percent.