WEBVTT NOTE This file was exported by MacCaption version 8.0.02 to comply with the WebVTT specification dated March 27, 2017. 00:00:00.500 --> 00:00:02.369 align:center line:-1 position:50% size:33% In this video we’re going to talk 00:00:02.369 --> 00:00:04.504 align:center line:-1 position:50% size:37% about what happens to your mortgage payments 00:00:04.504 --> 00:00:06.540 align:center line:-1 position:50% size:37% when you renew your variable rate mortgage 00:00:06.540 --> 00:00:09.276 align:center line:-1 position:50% size:40% during a time when interest rates are rising. 00:00:09.276 --> 00:00:11.178 align:center line:-1 position:50% size:33% And, we’ll cover some of the options you have 00:00:11.178 --> 00:00:12.779 align:center line:-1 position:50% size:41% for managing those payments. 00:00:14.381 --> 00:00:15.983 align:center line:-1 position:50% size:27% First, let’s talk about what happens 00:00:15.983 --> 00:00:17.584 align:center line:-1 position:50% size:43% when you renew your mortgage. 00:00:18.185 --> 00:00:19.853 align:center line:-1 position:50% size:34% Your mortgage comes up for renewal 00:00:19.853 --> 00:00:21.588 align:center line:-1 position:50% size:43% when your mortgage term ends. 00:00:21.588 --> 00:00:24.057 align:center line:-1 position:50% size:37% The term refers to how long your rate is set for. 00:00:25.192 --> 00:00:27.794 align:center line:-1 position:50% size:41% Amortization, which is another part of your mortgage, 00:00:27.794 --> 00:00:29.162 align:center line:-1 position:50% size:33% is the total length of time 00:00:29.162 --> 00:00:31.265 align:center line:-1 position:50% size:29% it takes to pay off your mortgage in full. 00:00:32.065 --> 00:00:34.268 align:center line:-1 position:50% size:38% Say you originally chose a 5 year term 00:00:34.268 --> 00:00:36.103 align:center line:-1 position:50% size:34% and 25 year amortization. 00:00:37.137 --> 00:00:38.972 align:center line:-1 position:50% size:34% When your mortgage first comes up for renewal 00:00:38.972 --> 00:00:40.274 align:center line:-1 position:50% size:29% at the end of 5 years, 00:00:40.274 --> 00:00:42.843 align:center line:-1 position:50% size:37% there would be 20 years left on the amortization. 00:00:44.077 --> 00:00:46.280 align:center line:-1 position:50% size:37% At renewal, you will choose a new term 00:00:46.280 --> 00:00:48.315 align:center line:-1 position:50% size:37% at mortgage rates available at that time. 00:00:49.383 --> 00:00:50.984 align:center line:-1 position:50% size:34% This term, along with your new rate, 00:00:50.984 --> 00:00:53.520 align:center line:-1 position:50% size:37% mortgage balance and remaining amortization 00:00:53.520 --> 00:00:56.423 align:center line:-1 position:50% size:37% are all used to calculate your new payment amount. 00:00:57.291 --> 00:00:59.459 align:center line:-1 position:50% size:33% Now, if your mortgage is coming up for renewal 00:00:59.459 --> 00:01:01.762 align:center line:-1 position:50% size:24% in a rising interest rate environment, 00:01:01.762 --> 00:01:04.965 align:center line:-1 position:50% size:47% your new mortgage payment could be higher than what you pay now. 00:01:05.565 --> 00:01:08.135 align:center line:-1 position:50% size:40% How much higher will depend on a few factors 00:01:08.135 --> 00:01:09.937 align:center line:-1 position:50% size:29% but some of the key ones include: 00:01:10.504 --> 00:01:14.007 align:center line:-1 position:50% size:39% Your current mortgage type – whether it is fixed or variable 00:01:14.007 --> 00:01:15.609 align:center line:-1 position:50% size:36% And your new interest rate 00:01:16.510 --> 00:01:19.313 align:center line:-1 position:50% size:37% If you have a variable rate mortgage, your interest rate 00:01:19.313 --> 00:01:21.515 align:center line:-1 position:50% size:37% may have already increased during your term. 00:01:22.049 --> 00:01:24.418 align:center line:-1 position:50% size:35% As a result, during at least some of the term, 00:01:24.418 --> 00:01:26.186 align:center line:-1 position:50% size:34% more of your payment would have been applied 00:01:26.186 --> 00:01:27.421 align:center line:-1 position:50% size:29% to cover your interest 00:01:27.421 --> 00:01:29.389 align:center line:-1 position:50% size:33% and less to paying down the principal. 00:01:30.223 --> 00:01:32.592 align:center line:-1 position:50% size:37% This means your principal balance is being paid down 00:01:32.592 --> 00:01:33.994 align:center line:-1 position:50% size:31% at a slower pace than it 00:01:33.994 --> 00:01:36.830 align:center line:-1 position:50% size:42% otherwise would have been had interest rates not changed. 00:01:37.698 --> 00:01:39.666 align:center line:-1 position:50% size:38% Consequently, your principal balance 00:01:39.666 --> 00:01:41.468 align:center line:-1 position:50% size:29% at the time of renewal will be higher 00:01:41.468 --> 00:01:44.271 align:center line:-1 position:50% size:42% than it would have been had interest rates stayed the same. 00:01:44.271 --> 00:01:46.039 align:center line:-1 position:50% size:30% Let’s say your variable interest rate 00:01:46.039 --> 00:01:50.811 align:center line:-1 position:50% size:44% increased from 2% to 4% in year 4 and 5 of your mortgage, 00:01:51.345 --> 00:01:52.980 align:center line:-1 position:50% size:35% which means that more of your payment 00:01:52.980 --> 00:01:55.148 align:center line:-1 position:50% size:42% has gone to paying the interest versus paying down 00:01:55.148 --> 00:01:57.617 align:center line:-1 position:50% size:42% your principal over these years. 00:01:57.617 --> 00:01:59.319 align:center line:-1 position:50% size:30% At the time of renewal, 00:01:59.319 --> 00:02:01.355 align:center line:-1 position:50% size:29% the interest rate rises further to 5%. 00:02:02.389 --> 00:02:05.292 align:center line:-1 position:50% size:40% If you started with a $478,000 00:02:05.292 --> 00:02:07.828 align:center line:-1 position:50% size:30% mortgage with 25 year amortization, 00:02:07.828 --> 00:02:13.433 align:center line:-1 position:50% size:39% your remaining principal after 5 years would be $17,348 00:02:13.433 --> 00:02:16.470 align:center line:-1 position:50% size:38% higher than if the rates didn’t change during the term. 00:02:16.470 --> 00:02:19.706 align:center line:-1 position:50% size:46% And, your monthly payment would increase from $2,026 00:02:20.374 --> 00:02:23.810 align:center line:-1 position:50% size:33% to $2,758 upon renewal. 00:02:23.810 --> 00:02:25.979 align:center line:-1 position:50% size:27% Nobody likes to see payments increase. 00:02:25.979 --> 00:02:27.748 align:center line:-1 position:50% size:29% Fortunately, there are a few steps 00:02:27.748 --> 00:02:30.117 align:center line:-1 position:50% size:44% you can take to lower the impact of changing rates 00:02:30.117 --> 00:02:31.718 align:center line:-1 position:50% size:33% before it's time to renew. 00:02:31.718 --> 00:02:33.420 align:center line:-1 position:50% size:36% You can make a lump sum payment; 00:02:33.420 --> 00:02:35.288 align:center line:-1 position:50% size:28% you can Double-Up® your payments; 00:02:35.288 --> 00:02:37.791 align:center line:-1 position:50% size:43% or you can increase your regular mortgage payment. 00:02:38.959 --> 00:02:41.461 align:center line:-1 position:50% size:40% Any of these actions can help reduce your principal balance 00:02:41.461 --> 00:02:44.297 align:center line:-1 position:50% size:43% and help lower the impact of a higher payment at renewal. 00:02:45.298 --> 00:02:47.434 align:center line:-1 position:50% size:37% In addition to these options, there may be other ways 00:02:47.434 --> 00:02:48.769 align:center line:-1 position:50% size:35% to manage your mortgage payments, 00:02:48.769 --> 00:02:51.204 align:center line:-1 position:50% size:38% depending on your personal circumstances. 00:02:51.204 --> 00:02:53.874 align:center line:-1 position:50% size:42% Some clients may be eligible to increase their amortization 00:02:53.874 --> 00:02:55.642 align:center line:-1 position:50% size:32% period to help lower the payment amount. 00:02:56.209 --> 00:02:59.179 align:center line:-1 position:50% size:37% We can help you take steps to manage your cash flow 00:02:59.179 --> 00:03:00.380 align:center line:-1 position:50% size:27% and your mortgage. 00:03:00.380 --> 00:03:02.249 align:center line:-1 position:50% size:40% Talk to an RBC advisor today!