Paying your mortgage off faster and avoiding payment shock
Blink mortgage educational video series
If rates rise during your 5 year fixed rate term, what will be your new monthly cost at renewal?
Individuals who do not prepare for a rise in rates can be blindsided when their payment jumps a couple hundred dollars at renewal. We call this payment shock. Preparing for payment shock is not only smart, it helps you payoff your mortgage faster.
What is payment shock?
Payment Shock is a term we coined for the surprise people get at renewal when their payments go up.
Pretend you get a low interest rate for a 3-5 year term, only for interest rates to rise back to more historically normal levels throughout the period of the loan. Meaning, when you need to go get your next mortgage, you’ll have to pay a much higher payment that you weren’t expecting. In some situations these increases can be very significant.
For example, based on a $355,000 mortgage amount and the current rate environment we’re in, I estimate you could potentially see the following impact to your mortgage payment over a five year period:
Rate today: 2.49% with a payment of $1,605
Rate in 5 years: 5.25% with a payment at renewal of $1,800
That’s an increase of $195 a month.
The example above is why I always ask individuals to look for a broker with a financial plan that makes sense to them. Here at Blink Mortgage, we offer a way of alerting you to rising rates, so you aren’t blindsided at renewal.