1/8/2024 0 Comments Rbc conversion rateLet's say your variable interest rate increased from 2% to 4% in year 4 and 5 of your mortgage, which means that more of your payment has gone to paying the interest versus paying down your principal over these years. Consequently, your principal balance at the time of renewal will be higher than it would have been had interest rates stayed the same. This means your principal balance is being paid down at a slower pace than it otherwise would have been had interest rates not changed. As a result, during at least some of the term, more of your payment would have been applied to cover your interest and less to paying down the principal. If you have a variable rate mortgage, your interest rate may have already increased during your term. How much higher will depend on a few factors but some of the key ones include: Your current mortgage type - whether it is fixed or variable. Now, if your mortgage is coming up for renewal in a rising interest rate environment, your new mortgage payment could be higher than what you pay now. This term, along with your new rate, mortgage balance and remaining amortization are all used to calculate your new payment amount. At renewal, you will choose a new term at mortgage rates available at that time. When your mortgage first comes up for renewal at the end of 5 years, there would be 20 years left on the amortization. Say you originally chose a 5 year term and 25 year amortization. Amortization, which is another part of your mortgage, is the total length of time it takes to pay off your mortgage in full. The term refers to how long your rate is set for. Your mortgage comes up for renewal when your mortgage term ends. First, let's talk about what happens when you renew your mortgage. And, we'll cover some of the options you have for managing those payments. In this video we're going to talk about what happens to your mortgage payments when you renew your variable rate mortgage during a time when interest rates are rising.
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