In years past, when Canadians faced an array of higher interest rates, the majority of the home owner’s monthly mortgage payment at the beginning of the mortgage went to paying down the interest, leaving the principal relatively untouched. The following chart shows just how much the interest rate can impact monthly mortgage payments, the interest costs incurred over the term of a mortgage, as well as the outstanding balance at the end of the 5-year term.
Example: Based on a $200,000 5-year open variable rate mortgage, amortized over 25 years
|
|
Interest Rate |
Monthly Payment |
Interest Costs for the Term |
Outstanding Balance after 5 years |
|
Today’s Best Rate |
3.39% |
$ 987 |
$31,421 |
$172,203 |
|
2001 |
6% |
$1289 |
$57,180 |
$179,654 |
|
1991 |
12% |
$2106 |
$117,693 |
$191,306 |
Using the 3.39% example noted above, an average $463.00 of the above $987.00 monthly mortgage payment goes towards paying down the principal on the mortgage. It’s like saving $463.00 every month.
Comparing Rental Payments vs. Mortgage Payments
Everyone needs shelter whether renting or buying. Using the figure from the example above, a monthly rental fee of $987.00 goes to the landlord while a mortgage payment of $987.00 helps the consumer save on average $463.00 per month.
Results… the cost for shelter on home ownership is reduced to $524.00 a month vs. $987. for rental accommodations.
(Note additional fees for home ownership will included property taxes, ….however heat, hydro, cable, phone is usually paid by the consumer whether renting or owning. )
Equity Building
Now factor in Equity Building – the increase in the value of the home over that 5-year period in conjunction with hidden savings – a substantial increase in the real estate investment is realized.
In short, low interest rates have made Real Estate an excellent investment in Canada.
For more information on Hidden Savings and Equity Building, call one of our highly trained sales repreentatives today!