In both rising markets and softer markets there will be many people contemplating making a move to a larger home and with that larger home often comes a larger mortgage. Last month’s newsletter offered technical tips to help prepare for the process of porting your mortgage to a new property, this month we will talk about preparing for a payment increase in advance.
We test drive cars before we buy, we try on clothes before we buy, we even sample wines or beers before we commit. Yet when it comes to taking on a mortgage payment, or increasing our mortgage size, and thus payment, few of us take the new monthly payment around the block. Instead, we are often so caught up on other aspects of the process that 30 days after moving in when that first payment is withdrawn, there can be a degree of post-closing payment shock.
Knowing your numbers in advance is one thing – living with the numbers in advance is another.
Here is a table for quick calculations of the possible increase in mortgage amount you may be considering:
Mortgage Amount Monthly Payment
*Based on a 2.69% 5yr fixed rate amortised over 25yrs.
The key to this is not simply doing the math and knowing what your future payments will be for the next 25 years. The key is to actually increase your current mortgage (via your prepayment privleges) by the corresponding amount so that you are making that new payment for a few months prior to taking action. Alternatively, you might choose to withdraw an amount equal to the proposed increase from your account and stash it in a ‘safe‘ place like a savings account, an actual safe, or a parents care. The key is to start replicating that new payment and confirm you can live with it prior to actually taking it on.