Can you afford higher interest rates?
All major economists are saying that the current interest rates cannot remain at this low level. Even the government has been warning Canadians that these rates will be increasing. Canadians continue to spend more than they are making and many are maxed out on their mortgage right now.
My question to you is: “Can you afford higher interest rates?”
What happens if your mortgage rate goes up by a ¼% or even by 1%?
To make this calculation easier, I used a Mortgage Calculator. A great site to help with these calculations is the Financial Consumer Agency of Canada. The FCAC was established in 2001. Part of the FCAC’s mandate is to expand consumer education.
Below is a chart that lists monthly payments and the amount of interest paid for both a $100,000 and a $150,000 mortgage. The current interest rate for a 5 year closed mortgage currently is 4.99%.
For the $100,000 mortgage, your current monthly payments would be $581.04 and over 25 years of this mortgage you would be paying $74,310.75 worth of interest. If the interest rate increased by ¼%, the mortgage payment would increase by $14.30 per month, and you would be paying $4291.97 more towards the interest payments. If the interest rate increased by 1%, it would be a $58.17 a month increase, and $17,452.95 more paid to interest.
For the $150,000 mortgage, your current monthly payments would be $871.55 and you would be paying $111,466.13 worth of interest. If the interest rate increased by ¼%, your mortgage payment would increase by $21.46 per month, $6,437.95 towards interest. If the interest rate increased by 1%, your mortgage payment would be up $87.27 on your monthly payment and $26,179.42 on interest.
Your mortgage can be calculated exactly the same way using FCAC’s Mortgage Calculator and then you can answer my question: “Can you afford higher interest rates?”
Mortgage over 25 years
| 5 Year Closed | $100,000 | $150,000 | ||
| Monthly Payment | Total Interest Paid | Monthly Payment | Total Interest Paid | |
| 4.99% | $581.04 | $74,310.75 | $871.55 | $111,466.13 |
| up 1/4% | ||||
| 5.24% | $595.34 | $78,602.72 | $893.01 | $117,904.08 |
| up 1% | ||||
| 5.99% | $639.21 | $91,763.70 | $958.82 | $137,645.55 |
Heather Cudmore is the Manager of Credit Counselling at Carizon Family and Community Services.
