We’ve all heard the talk about rising interest rates and the importance of budget planning, but what does it really mean? How is someone supposed to understand how a two percent increase in their mortgage rate will impact their life?

Instead of using the same old jargon, the experts at Royal City Realty have decided to talk about interest rates in plain English using real-life examples. We believe it’s time to get real about mortgages.

What is going on with interest rates?

We heard the news today, oh boy. The Bank of Canada raised interest rates again.

Here are the facts:

• The Bank of Canada has raised interest rates three times so far in 2018.
• We are now at the highest rates since late 2008.
• The assumption is that there will be more interest rate hikes in the near future.

What does the increase in interest rates actually mean?

They raised interest rates by another 0.25%. That’s not a big deal, right? What’s a quarter of a percent?

Well, that depends on where you stand. Here’s an example for you:

“Taking a $400,000 mortgage with a 20-year amortization and a 3.5 percent interest rate as an example, a 0.25 percent increase amounts to paying $50 more each month. If all the expected hikes come to pass, by the end of 2019 that mortgage will cost an additional $200 a month.” — CTV News

Real Life Math for Real Life Mortgages

An extra $200 each month doesn’t sound like much. That’s less than $7 a day — which is just the cost of one fancy coffee at Starbucks!

Ask yourself these questions:

1. Am I currently saving $200 every month?
2. Do I expect a pay increase in the near future?
3. What major expenses am I currently budgeting for?

If you’re like most people, then you probably answered:

1. Um, no. That’s not happening.
2. Yeah, right.
3. The roof, the car, the school, the holidays — the list goes on.

If your mortgage interest rate is going to go up, you want to be sure that you can handle it. You want to know how you might have to adjust your life.

Using the example above, it may be as simple as not going out for a fancy dinner or reducing your shopping habits. Whatever your situation, you want to make sure you are house rich — not house poor.

At Royal City Realty, we understand the market and the trends and, when it comes to buying your home, we’ll help you understand where you fit in the interest rate equation.