I get a very typical question from my clients; what do I think will happen with interest rates shortly and long term.
Most mortgage brokers have a good idea of what may happen with mortgage rates in the short term, a few weeks, or maybe even a month out.
For a mortgage broker to advise that they can definitively predict what will happen with the direction of mortgage rates long term is in the wrong business.
If I could predict the absolute path of mortgage rates since I started my carrier in 1988, I would be a very wealthy individual today.
How do mortgage rates work?
Mortgage rates generally work in an inverse relationship to economic growth and or the overall economy. If economic growth is rapidly growing, mortgage rates will start to push up. If the economy is doing poorly, which is the case when writing this post in 2020, rates will drop.
The Rule Of Thumb
BAD ECONOMIC NEWS IS GOOD NEWS FOR MORTGAGE RATES, AND GOOD ECONOMIC NEWS IS BAD NEWS FOR MORTGAGE RATES.
So how do you plan for future rate drops or increases if you are currently holding a mortgage?
Renewing into rates dropping should not be a concern. But what about the possibility of renewing when rates are increasing?
My suggestion is never overextended yourself with debt and start to plan for your mortgage renewal about a year out.
The most conservative method of calculating possible future mortgage payments is to do the following:
1) Estimate your mortgage balance at maturity.
2) Estimate your remaining amortization.
3) Use a five-year average for five-year mortgages. You can drop me an email, and I will send you the current five-year average rate.
4) Calculate your potential mortgage payment using the online calculators within this site.
See my step by step guide below for details of each calculation.
The other option is to email items 1 & 2 to me at firstname.lastname@example.org, and I will calculate for you.
If you would like to get a sense of if you might have a potential issue in the future with renewing into higher rates and current debt load, fill out the following form by requesting a copy here.
If, after doing the worksheet and realizing you are overextended, start to think about reducing debt, I can also help you restructure your mortgage if necessary.
For a free mortgage consultation, please feel free to book an appointment at https://calendly.com/canadamortgageprofessional/60min