Blog by Artur Gryz

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Are you @ risk of payment shock?

Are you at risk of Payment Shock? Perhaps you are and don't even realize it? Payment Shock is the potential issue of incurring a significantly higher mortgage payment at renewal caused by raising interest rates.

First I will elaborate further with some numbers and then provide a solution. Let's say a few years ago you obtained a mortgage with an unusually low mortgage rate (what people are seeing as normality) of 3.50% with a 35 year amortization and 5 year term. Using the average Greater Vancouver Mortgage of $330,000, your mortgage payment would be $1,359.04. At the completion of your term, your mortgage balance would be $303,602.59.

If and only if your interest rate was still available, your amortization drops to 30 year (5 years was just paid off) but your payment remains the same. Yes, you can increase your amortization again (if available) to lower your payment but then you never pay off the mortgage. The biggest concern is what happens when the interest rates go back up to 5% or 6% where they more typically sit?

If your interest rate jumped to 5%, your mortgage payment would now be $1,620.30 which is about a 16% increase. What if you rate jumped to 6%, now you are looking at a mortgage payment of $1,805.90 which is roughly a 25% increase and almost $450 higher. Can your family afford that potential increase? Many families can't.

My next article will explain the Inflation Hedge Mortgage Strategy which is the solution to this potentially huge issue.

Remember to Own Your Life and have a nice day!

Jessi Johnson

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