Mortgage rates were 9 to 12% when I started working at the bank in the early 90’s! They went up slightly before coming down and they’ve been so low for so long, I cringe at the thought of what higher rates will do to mortgage payments. Depending how much of a mortgage you have, an increase of .25% will increase your monthly payments by $140. That doesn’t seem so bad until rates go up by .5%, 1% or 2%. Do you expect your monthly, after tax income to rise in parallel? If so, then it won’t feel so tight but if it won’t….ouch!

That’s the bad news. The good news is that you have a couple options to explore:

• How long is your rate and term set for? Can you increase your payments now to take advantage of repaying the mortgage faster? That way there will be less to calculate interest on when it comes up for renewal and a rate increase won’t be quite so painful.
• Are you due to renew soon and if so, will your bank hold a rate for you or can you do an early renewal? Sometimes paying a small penalty now to extend a low rate for a longer term is worthwhile.
• Does your bank offer options such as blend and extend? This is where your current rate is blended with the rate of a longer term (prorating the terms) without any penalty. Essentially you still benefit from the lower rate of your current term and then pay the rate of the extended term. This is a way of securing today’s rates for a longer term because the big question is…what will they be when your mortgage is up for renewal? Doubtful they will go back down.

At the end of the day, a small increase in rates is not worth losing sleep over but if you know how long you will stay in your home without any moves or changes and you want a fixed mortgage payment at an amount you know you can afford, then matching the term to these objectives is the key.