We unwittingly followed Dave Ramsey’s advice this month. Closing this week on a house. 5.58% interest rate, 5-year fixed (in Canada, that’s the standard term). The mortgage payment is about 15% of our take-home income, so we plan to double up the payments and pay it off as quickly as possible.
Because of the high interest rates, this house had been sitting on the market for over two months, and the owner had dropped the price. We got it for $40k less than the original asking price, which was already $25k lower than the asking price of similar houses in the neighborhood. It’s in a good neighborhood though, near a major university, and houses don’t typically go on the market in that area. (This year, there were two in the specific micro-neighborhood we were looking at, and we bought one of them.)
Because the market has slowed down, we were able to put in a few conditions and take our time making a decision. Since we got our mortgage in July, the interest rate has gone up again, and is slated to go up once or twice more in the coming year.
When interest rates are low and the market is hot, and bidding wars are common, you could end up making a decision in the heat of the moment, and once interest rates rise, you could be in trouble. That’s what happened to our friend. He’s now selling investments to pay for his mortgage since interest rates have almost doubled for him and he can no longer afford the mortgage on his million dollar home. Plus he waived the inspection and is now bleeding money replacing old, broken roofs and furnaces, etc. Plus he chose a variable interest rate mortgage instead of a fixed one, so he’s kind of hurting right now.
