# Rates Going Up. What does it Mean?

## Rates are going up. What does it mean for you?

If you are currently locked in a fixed rate mortgage, there is no change. If you have a variable rate mortgage or are actively in the process of securing a new mortgage (buy, renew, refinance) then here is what you need to know.

## Impact on monthly payment

As noted in a previous article, a 0.10% rate increase (ex. 2.49% to 2.59%) on a \$100,000 mortgage accounts for approximately \$5.00 increase in monthly payments. That’s about the price of one Starbucks specialty coffee or Dairy Queen Blizzard; easily absorbed financially (not to mention calorie-wise, as I’ve noticed since turning 40!).

## Impact on interest expense

Keep in mind that the true cost is greater than just the immediate out-of-pocket expense. The actual interest expense for the rate increase in this example is \$8.33 per month; so, while the additional ~\$5 payment all goes toward interest, so does a portion of what used to be going toward paying down the principle. Evidently, the real cost is closer to a McDonald’s combo meal.

You can calculate the true interest expense of your increase as follows:
• New rate interest: \$100,000 x 2.59% / 12 = \$215.83
• Old rate interest: \$100,000 x 2.49% / 12 = \$207.50
• Difference: \$215.83 – \$207.50 = \$8.33 per month
While a 0.10% rate increase over \$100,000 loan is still negligible, it can be more significant as the size of loan and rate increases.

## Impact on Average Mortgage Sizes in Canada

If the current changes see an average rate increase of 0.15%, what affect will it have on the average mortgage?

For CMHC’s average mortgage size of \$176,000.00, a 0.15% rate increase means interest expenses rise by \$22.02 per month. Think BP signature burger and a beverage.

For British Columbia’s average mortgage size of \$320,000.00, a 0.15% rate increase means interest expenses rise by \$39.74 per month. Two signature burgers, one beverage, and 2 straws.

## The Bottom Line

The bottom line is that as much as the media hype can leave a gloomy picture, in reality the lifestyle adjustment is relatively minor on a month by month basis. And don’t forget (especially if these minor changes are a concern), there is far more to a mortgage than just rate, and the other factors could save (or cost) you thousands. Got questions? Let’s chat.

(For the record, I am not a fast food junkie despite the numerous references to the contrary. However, the apparent self discipline is largely necessitated by a variety of inconvenient food sensitivities, without which it might otherwise be different story!)