By the Numbers

Here we are in a brand new year, and hopefully the economy, among other things, will turn around in our favour. I did a little digging into the repercussions of rising interest rates and was stunned with my findings.

First off, let me explain, I am not a mortgage specialist or financial advisor, so the numbers and options mentioned are not to be acted upon. They are merely for your interest.

The recent interest rate hike puts us at 4.25%. Last year at this time, we were at .25%. It does not sound like much of a difference, but it is a 1700% increase. The reason for the interest rate hike is, to stop people from spending, which will lead to a decrease in inflation. Yes, it is working, but what does this hike in interest rates mean to the average homeowner?

Clearly, people who owe money are the ones impacted the most, especially those who are looking to purchase a home. Let us look at a scenario of a house, with a value of 1 million dollars, which as high as it may sound, is no longer unrealistic. The average down payment tends to be 20%, or in this model, $200,000.

I recently read it would take about 20 years for a couple to save $200,000. Many are able to go to the bank of mom and dad, and others seek loans elsewhere.

Let us look at the $800,000 mortgage in our storyline. Mortgages are usually amortized over 25 or 30 years, so we will use 25 for this scenario. A year ago the interest rate for a 5 year, fixed rate mortgage was 1.4%. Today that same mortgage rate is 6.5%. To many of us, that rate does not seem high. Those of you old enough, may remember 18% mortgages in the eighties.

If you purchased our million dollar home a year ago, your payment would be $3161 a month. Although it is an acceptable amount, you need about $100,000 a year of household income to be able to afford the payment, and enjoy your life. That same mortgage, at 6%