How Will I Afford It If My Mortgage Interest Rate Goes Up One Percent?

How Will I Afford It If My Mortgage Interest Rate Goes Up One Percent?

Surviving the Impact of a One Percent Mortgage Interest Rate Hike

As a homeowner with a mortgage, a one percent increase in interest rates might seem insignificant at first glance. However, when translated to dollars, it could mean an additional $175 per month on a $300,000 mortgage. A two percent hike could mean an extra $350. The question then becomes, how do you adjust your budget to accommodate these changes?

The Reality of Rising Mortgage Rates

Mortgage interest rates are undeniably on the rise. This presents a challenge for homeowners who must find a way to afford the associated increase in monthly mortgage payments.

The first step to solving this problem is to identify areas in your budget where you can cut back. This could be dining out, fuel, or even holiday gifts. Try to cut back your spending by $350 over the next month and put the saved amount in a savings account.

This exercise is a practical way to envision the impact of a mortgage rate increase. If you find you need to withdraw the money to pay your bills, then you have a clear picture of what it will be like when your mortgage rate goes up.

Understanding the Concept of Saving

Next, it’s crucial to understand the true concept of saving. Saving money means you have money leftover in a bank account or invested without increasing your debt.

If you’re consistently paying your mortgage on time or saving money while your credit card debt is increasing, you’re essentially paying your mortgage with credit card debt. Similarly, if you’re saving in an RRSP or TFSA while your credit card debt is rising, you’re funding these savings with credit card debt.

Credit card debt is typically more expensive than your mortgage, making it an unfavorable option for financing your mortgage payments.

The Value of Saving on Credit Card Interest

Reducing your credit card debt can save you a significant amount in interest payments. While this may not be as evident as seeing your savings account balance increase, it’s a more effective way to save money.

Take immediate action to adjust your spending habits and decrease your credit card debt as quickly as possible.

Considering a Consumer Proposal

If the thought of trying to pay down your credit card and bank loan debt while affording your mortgage is overwhelming, you might want to consider making a consumer proposal on your credit card debt.

A consumer proposal won’t affect your mortgage, and you can keep your house (and your car) when you make one.

In conclusion, a one percent increase in your mortgage interest rate is a significant change that requires a strategic adjustment in your financial habits. However, with careful planning and smart decisions, it’s possible to navigate this challenge successfully.

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