Possible Interest Rate Hike and Mortgage Payment

With the current super low interest rate and fairly big drop of the housing price, many people are considering buying a new home. But, at the same time, people are worried about the possible interest rate hike in the future.  Both US and Canadian government, actually all countries around the world, have injected a large amount of money into the economy and try to stimulte it. The chance of high inflation in the near future is very possible.  But should you be worried about the interest rate increase if you are going to buy a new home now? My thought is that as long as you live within your means, in other words, buying a home which you can comfortable afford now, you should not be worried. Here is why:

        1. Interest rate usually increases along with the inflation rate. Hopfully, your salary will keep going up for at least the inflation rate. A house that is affordable to you today should be affordable to you in the next five years.

        2. The prime rate is not usually mortgage rate. If the prime rate goes up to 11% in 2014, the mortgage rate will probably be 11%-x%. Yes, it will be much much higher than today’s rate. But it won’t be that bad as you think.

       3. One can always renew their mortgage early. Home buyers can always do a early renew on their existing mortgage and lock into a fixed mortgage rate when they think the interest rate is going up to the roof.

    So, home-owners-soon-to-be should not be worried about the interest rate hike. But the key is to buy a house/condo one can afford. We do not want another sub-prime crisis.