The TRUE cost of higher interest rates
Ayden Byle
High achieving Sales Person with executive references. Specialties - Healthcare/Tech. As Sales Lead, built sales teams, processes and strategies for various companies that IPO'd or were acquired. Let's Chat!
The TRUE cost of higher interest rates
The vast majority of people who call me about getting a mortgage are solely focused on their monthly payment. Hey - I get it! If you are renting and thinking about purchasing a home, then it's important to know what your monthly payment will be in comparison to your rent. But that is truly only one small slice of the picture for your overall financial health over the long run.
Unless you have serious cash flow problems and are not anticipating any increase in income in the years ahead then the much more important number to be looking at is how much of your payment goes toward interest and how much goes toward your savings or principle. The interest portion is actually what it's costing you to live in your house as opposed to your current rent cost. And tantamount to that is the interest rate % you are paying, and what your mortgage agent could find or negotiate for you.
When interest rates go up wildly like they have recently, it's not just that your payments are larger but also less of the payment goes toward your principle. The devil is in the details. And even if you are comparing your current rent to the interest portion of your proposed monthly mortgage payment, again you are not seeing the whole picture. I would definitely suggest you look at how much interest you are paying throughout the whole term of the mortgage as well as throughout the entire 25 or 30 year amortization. You may be quite surprised how an increase or decrease of even 2% in fixed interest rates may affect your overall costs of the mortgage. Below is a very simplistic example:
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One other important factor I always consider when purchasing myself is whether the home will go up in value significantly enough to more than offset the interest I am paying. If so it's not really costing you anything to own as opposed to renting. Also if there is potential rental income in the basement with an apartment then things are even rosier! Over the long run, considering all these factors are key to building your wealth and equity!
For more information or advice on interest rates and mortgage options, or to complete an application give us a call!