First-time homebuyers nowadays may not realize how good they have it, with current mortgage interest rates as low as they are. Just ask anyone who purchased a home in the 1980s and paid double-digit rates. I still wonder whether people entering the homeownership marketplace understand how significant the rate is over the course of the mortgage amortization.
Let’s look at a few examples, using a $300,000 mortgage over a 25-year amortization, paying monthly for the full 25 years.
- Mortgage interest rate of 3 per cent: $1,422.63 per month = $426,789 total paid at 25 years
- Mortgage interest rate of 3.1 per cent: $1,438.29 per month = $431,487 total paid at 25 years
- Mortgage interest rate of 3.2 per cent: $1,454.04 per month = $436,212 total paid at 25 years
Going from 3.0 per cent to 3.1 per cent costs you $4698; from 3.0 per cent to 3.2 per cent, you pay another $9,423. Even a fraction of a percentage point lower can save you thousands in the end – and who can’t use thousands of dollars at any stage of life?
Now, keep in mind, usually you are working with a limited-year term, which changes the amounts slightly. If you want a more detailed calculation, the Government of Canada’s mortgage calculator (https://bit.ly/2zvHjMD) takes the term into consideration.
The moral of the story is to buy NOW as opposed to later, when rates are likely to go up, is a wise decision. The one thing holding back first-time and other buyers is the mortgage stress test imposed last year, which begs the question as to whether it is in everyone’s best interest. However you look at it, buying sooner rather than later will save you money in the long run.