With the strong employment gains, consumer spending, travel and other discretionary spending still robust, I would expect to see a couple more rate increases over the summer. Like I have said before, I would also not expect interest rates to come down any time soon and the markets are starting to agree with me as the long end of the interest rate is rising. Both the Bank of Canada and the U.S. fed seem bound and determined to force a recession, despite all their claims to the contrary.
Anyone with fixed rate debt that comes up for renewal in the next 24 months should be planning and working on their renewal strategies now, including a large chunk of change to pay down the loan, as there is no limit at renewal and the lower balance will help offset the rising rates.
Many mortgage brokers and advisors are counselling people to extend their amortization, to keep payments in check when renewing at much higher rates. This is a real mugs game and a tremendously expensive option.
Some lenders are starting to offer 30 and 40 year mortgages so for info purposed, a 500,000 mortgage at 5% over 20 years is$3,300/m, 25 years is $2,923/m, 30 years, $2,684 and 40 years $,2,410, 50 years is $2,271. As you stretch the amortization you rapidly enter the realm of diminishing returns. With the 40 year mortgage you pay an additional 289,200 to reduce your monthly payment $274/month ($98,640) versus the 30 year amortization. That is a tremendously expensive way to reduce payments.
If there is zero other choice it is better than losing the house, but the costs are significant.
|