Personal Investor: The mortgage market is getting ugly
In just a matter of months the burden of borrowing to own a home has multiplied.
The big banks have hiked their posted benchmark five-year fixed mortgage rates to well over five per cent. Some of the smaller lenders are still offering five-year fixed mortgages at less than four per cent, but with central banks hiking their benchmark rates it’s just a matter of time until nearly every home owner with a mortgage pays more.
Variable rate mortgages are still available at 2.5 per cent for borrowers who are prepared to be exposed to the full force of rate increases, but there’s no denying you can’t buck the trend.
To illustrate how much that mortgage burden will increase, a $500,000 mortgage at 2.5 per cent, with monthly payments of $2,300 would take 24 years to pay off. The total interest cost would be $166,540.
The same $500,000 mortgage at 5.5 per cent, with monthly payments of $2,300 would take 102 years to pay off with total interest payments of $2,327,000.
It’s hard to know how high mortgage rates will go, but looking back fixed rates hit 14 per cent in 1990. That’s something to think about.