Typically, interest rates will begin to rise when the economy is recovering as this is the case we we should be seeing now. Admittedly, low interest rates for the past year or so has enticed buyers to make purchases of properties since mortgage payments will be very affordable given the low interest rates. As such, buyers can be lulled into the belief or assume that mortgage payments will continue to remain affordable for a long time and this can be a rather expensive assumption.
As an example, we can consider a loan quantum of $500,000 with a loan period of 30 years. With an interest rate of 3%, the monthly mortgage payment will be $2,168. If the interest rate is increased by 2.5% to 5.5%, the mortgage payment will increase to $2,839 and that will be an increase of $671. So the question is that will you have any difficulty in servicing the monthly mortgage payment if the interest rate increases ? Otherwise, it will be prudent not to over leverage and set aside an amount of funds to cover implications that may arise from an increased interest rate.
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