The economy has started to pick up, and interest rate hikes are seen to rise as well. Economic experts predict that banks would be raising their rates by half a percentage point within the first semester of 2018, or even by late 2017. This development will definitely affect your home mortgage.
The earlier you prepare for higher interest rates, the sooner you will be in good financial shape. Following are some tips on how you can get ready for the anticipated higher interest on lines of credit, mortgages, and other types of financial borrowing in Bradford.
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Check Your Mortgage’s Renewal Date
If your renewal date will coincide with the expected interest rate hike, find out if you can negotiate for an earlier renewal. While there are lenders that allow renewal a few months prior to the actual renewal date, they may not actually offer better rates. In this case, you can start shopping around for other lenders who can offer better rates. Ask your mortgage broker to facilitate the transfer upon renewal.
Opt for a Mortgage with Fixed Rate
Some homeowners claim that variable rate mortgages are money savers in the long term. However, you enjoy two levels of protection with a fixed rate mortgage. First, your payments are already set for the duration of your mortgage. Second, you won’t have to worry about interest rate hikes.
Consider a Lump-Sum Prepayment for Your Mortgage
By making a bigger prepayment, you practically lower your principal. This will make future financing rates lower. You will save on interest expenses over time.
Lock in the Mortgage Rate
A lot of lenders are amenable to holding the rates for up to 90 or 120 days. Today, getting a commitment on rates is important, whether or not you are serious about buying.
Start Paying Off the Balance in Your Line of Credit
The Canadian Financial Consumer Agency reports that 25% of all people with lines of credit make at least the minimum required payment each month. This usually represents only the interest. 40% do not regularly make payments intended to reduce the total loan balance.
Once the interest rates get higher, these paying habits will only get you deeper in debt. You need to start paying to lower the principal now, while the interest costs are lower.
Slow Down on Your Car Buying Habit
The low interest rates in recent years triggered a surge in automobile sales, and made it possible for people to afford higher-end vehicles. To truly enjoy savings, you need to make do with lower-priced vehicles.
Tips for Savers and Investors
• Watch Out for Savings on Better Rates
Once the rates start to rise, make sure that the credit union or bank where you maintain a high-rate savings account bumps up your return. Otherwise, move your savings elsewhere.
• Be Careful with Long Term Bonds and Funds
The lower interests in recent years resulted to better profits from long term bond. However, long term bonds would be hit hard by rising rates. Shift to short term bonds with maturity of no more than 5 years.
• Expect Dividend Stocks to Struggle
With the rising interest, pipeline, utility, and telecoms stocks are expected to suffer. Real estate investments may follow suit. If your intention is to gain dividend income, just ignore the declining prices.
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