Variable rate mortgage borrowers are on a roller coaster ride when interest rates climb. Even fixed interest rate mortgage borrowers may be feeling the pain when loans come due for renewal. Low introductory rates for mortgages can backfire too if interest rates climb just as that rate expires.

Arm yourself with these facts when interest rates climb.

Three ways higher interest rates affect mortgages:

Homes are more expensive.

First time home buyers and mortgage borrowers forced to move can be hit hardest when interest rates climb. How much buyers can afford for a home stays static, but what it costs to buy real estate may go way up. Looking at lower-priced properties, downsizing expectations, or delaying purchases may be the best strategies for stressed mortgage borrowers. Figure out how inflation affects spending power.

The cost of borrowed money increases.

Mortgage borrowers might be able to limit debts and how long they amortize a home, but what they can’t control is what it costs to service a loan. Breaking it down, $475,000 borrowed over 25 years on a five-year fixed term at 5.15% is $646.60 weekly or $168,063.70 for principal and interest. That same amount at 2.75% is $504.48 weekly or $131,165.70 for principal and interest. Calculate the effect of rising interest rates on a mortgage.

Inflation shrinks demand and supply.

Who doesn’t clamp down on spending during inflation? Cautious mortgage borrowers retreat when interest rates climb. Prospective sellers pull their home off the MLS to outwait the slowdown in buyer demand. Disposable income shrinks if wages can’t keep up.

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Who Rising Interest Rates Benefit

Savers gain when interest rates climb. Interest rates on certificates of deposit (CDs), savings, and money market accounts go up in an inflation. Rising interest rates cool overheated housing markets, making homes more affordable for committed homebuyers who can bear up under the higher borrowing costs.

But mortgage borrowers can benefit in other ways when interest rates climb. inflation-driven wage increases put extra cash in borrowers’ pockets that can make its way into the mortgage market as lump sum payments. Inflation also devalues currency, and that means mortgage borrowers can pay back a lender with cash that is worth less than when they applied for their mortgage.

Lenders don’t lose out altogether. Inflationary pressures can drive consumers to apply for more credit and longer repayment terms. All that credit comes at higher interest rates.

Best Interest Rates for Mortgage Borrowers During Inflation

What is the best term to get when interest rates are high? That’s a decision best left to how risk adverse mortgage borrowers are.

Fixed-rate mortgages and five-year rates can help mortgage borrowers on a strict budget ride out inflation.
Fixed-rate mortgages stay steady and follow new bond yields, giving mortgage borrowers a break from rises in interest rates.
Variable rate mortgage borrowers benefit the most if interest rates drop. Their total debt servicing over time is generally lower. If they can stand the unpredictability, they could be the biggest winners.

Advice on managing your money when interest rates rise.

Why You Need a Real Estate Lawyer

Seal property transactions quickly and conveniently when you use an Axess Law real estate lawyer. Our real estate lawyers charge less than traditional law firms because you get only the legal services you absolutely need.

Our licenced legal team reviews the agreement of purchase and sale for terms and conditions that may need amending. We add essential clauses to protect your financial interests and amend completion dates when your mortgage negotiations run longer than expected. Drafting the agreement of purchase and sale.

We suggest what to include in your legally binding contract so you can cancel if needed by mutual consent. If you’ve signed an offer to purchase you now regret, we explain your buyer’s right to cancel and financial consequences if the seller disagrees. What happens to the deposit if the deal falls through.

Your Axess Law real estate attorney searches title to property for construction liens or financial claims that could block a legal transfer. Add a spouse or family member to title now or later. Make property title transfers (Ontario).

Discharge existing mortgages and get new mortgage documents witnessed by a professional real estate lawyer. Axess Law liaises with your mortgage lender to ensure mortgage papers are witnessed, signed, and delivered on time.

Affordable Real Estate Lawyers, Anywhere You Are

Access lawyers for less in the Greater Toronto Area, Ottawa, or anywhere in Ontario when you buy, sell, or transfer property. Axess Law’s flat fee real estate lawyers are affordable, and our rates are all inclusive (excluding taxes, disbursements, and third-party charges). Axess Law offers you only the legal services you absolutely need. Your final invoice includes no surprises or hidden charges. Your itemized statement of adjustments is explained when we deliver it, and we answer any questions you have about it.

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Book Legal Appointments Quickly

Closing real estate transactions costs less than you might expect with Axess Law. Call our 647-479-0118 lawyer line in Toronto (toll free to 1-877-402-4207) or use our easy online booking form to find an Ontario real estate lawyer. We arrange virtual video conference appointments anywhere in Ontario. You can meet in person with a lawyer at any of our conveniently located Ottawa or Greater Toronto Area law offices.

Click here to learn more about Axess Law’s real estate law services.