Does your mortgage need a stress test?
A stress test for your mortgage may sound silly, but with lower than average interest rates, many homebuyers are rushing to purchase homes in order to take of the low rates. However, unless your mortgage broker does a stress test on your mortgage, you could wind up biting off more than you can chew.
If interest rates increase, will you still be able to afford your home?
A question to ask yourself would be what would happen if interest rates went up by 1 or 2%? You’d be surprised at the difference it could make for your finances. More importantly, could you still afford your home? A slight increase in rates could take your $1300 monthly payment at 3.5% and increase it to $1600 a month, which ends up increasing your total paid interest by almost $100,000.
We understand that sometimes it’s hard to see past the total mortgage amount because you found your forever home. It is so important to take the time to consider your lifestyle goals as well as your retirement plans. You still want to be able to have your dream home and your life.
Our mortgages brokers at River City Financial can help with this. We don’t want our customers to get in over their heads. That’s why we help you plan for the worst case scenario – in this case, high interest rates.
A stress test can also be helpful if you have plans to arrange a new purchase with a new mortgage, renew a mortgage or refinance an existing mortgage.
What is affordable today may not necessarily be affordable tomorrow.
We don’t want to see high interest rates wreak havoc on your financial health. There are options to avoid this. You could opt for a longer term mortgage which gives you a set payment for the duration of the set term. However, it is usually a higher rate to begin with. Some find it worth it to have peace of mind.
Another option would be to go with a short term mortgage with accelerated payments. Even an extra $25 a month can significantly reduce your interest costs.
Add on a lump sum prepayment option and you will reduce your risks even more. The smaller the balance, the less chance your payments will get out of hand if the rates go up.
For more information or if you would like to stress test your mortgage, please call us today (587) 409-2944.
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