- Joined
- Sep 14, 2007
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- 617
Well Tuesday`s rate increase by the Bank of Canada made big headlines this week. There were some people that argued that the increase wasn`t justified with the current global economic uncertainty but the majority of economists predicted the increase as Canada is leading the G7 in terms of economic growth and stability. But, more importantly, what does this rate hike really mean to you and me?
A quarter point increase means a difference of $12.36 on $100,000 of debt assuming a 25 year amortization. I don’t know about you but this doesn’t make too much of a difference in my daily life and as real estate investors we carry a substantial amount of mortgage debt!
The media and most Canadians like to make a big deal over these rate increases and decreases. It gives us something other than a rainy summer to talk about but to the average home owner and investor these small increases simply mean we need to have a couple of less lattes each month.
To me the signal of a rate increase or decrease is really a sign of economic strength. When I see the rates climbing it means to me that we are going in the right direction economically even though there may be some dark clouds this fall and winter. Jobs are starting to return and people are spending money again. Inflation may be a factor but for people with debt (the government included) this is a good thing as inflation means that even though a million dollars may seem like a lot today it won’t 10 years from now. Do you remember what your parents paid for their home? Doesn’t seem like much now does it?
I think that we will see an average of 0.75% increase each year for the next couple of years until we get back to a “normal” interest rate. Factor this into your personal home and investment purchases when you chose a variable mortgage. For those of you who think that a fixed rate mortgage is safer please do the math and see the very large difference in payments! I recommend that you take the 5 year fixed payment but take a variable rate mortgage. The savings with this strategy are very significant. According to Don R Campbell of the Real Estate Investment Network with a $300,000 mortgage you could save whopping $16,608 in 5 years and this gives you amazing flexibility. Isn’t it better to put that money in your pocket rather than the banks? It is little strategies like this that make a big big difference in your financial well being and the return on your investments.
So as the Bank of Canada changes the overnight rate remember to keep perspective and prosper! Hopefully the sun will return we will have more interesting things to talk about!
A quarter point increase means a difference of $12.36 on $100,000 of debt assuming a 25 year amortization. I don’t know about you but this doesn’t make too much of a difference in my daily life and as real estate investors we carry a substantial amount of mortgage debt!
The media and most Canadians like to make a big deal over these rate increases and decreases. It gives us something other than a rainy summer to talk about but to the average home owner and investor these small increases simply mean we need to have a couple of less lattes each month.
To me the signal of a rate increase or decrease is really a sign of economic strength. When I see the rates climbing it means to me that we are going in the right direction economically even though there may be some dark clouds this fall and winter. Jobs are starting to return and people are spending money again. Inflation may be a factor but for people with debt (the government included) this is a good thing as inflation means that even though a million dollars may seem like a lot today it won’t 10 years from now. Do you remember what your parents paid for their home? Doesn’t seem like much now does it?
I think that we will see an average of 0.75% increase each year for the next couple of years until we get back to a “normal” interest rate. Factor this into your personal home and investment purchases when you chose a variable mortgage. For those of you who think that a fixed rate mortgage is safer please do the math and see the very large difference in payments! I recommend that you take the 5 year fixed payment but take a variable rate mortgage. The savings with this strategy are very significant. According to Don R Campbell of the Real Estate Investment Network with a $300,000 mortgage you could save whopping $16,608 in 5 years and this gives you amazing flexibility. Isn’t it better to put that money in your pocket rather than the banks? It is little strategies like this that make a big big difference in your financial well being and the return on your investments.
So as the Bank of Canada changes the overnight rate remember to keep perspective and prosper! Hopefully the sun will return we will have more interesting things to talk about!
