The Best Tips for How to Prepare for Higher Payments
So, the big question remains – what can you do NOW to prepare for the higher payments? One of the best tips for homeowners is to use the much-maligned stress test to your advantage. Calculate the difference between your current mortgage or HELOC payment and what the payment would be at the higher, stress-test rate.
As of June 2021, the stress test interest rate rose to 5.25%. If you qualified for your mortgage in the last few years, calculate your higher payment at the previous stress test interest rate, which was 4.79%. If you’re not sure at which rate you were qualified, add at least 2.5% to your current interest rate.
For example, with a $550,000 mortgage amortized over 25 years:
Current monthly mortgage payment at 2%: $2,328.98
Monthly mortgage payment at stress test rate 5.25%: $3,277.55
Additional monthly amount that would be due: $948.57
Set the difference – the $948.57 – aside in a separate savings account. This way you can help yourself get ready for higher payments. It gives you a chance to adjust your lifestyle spending to a tighter budget while you remain in control of your situation. The money that accumulates in savings will be there as a cushion to help you navigate through future uncertainties. It really is a win-win all around, especially if you discover that a tighter budget isn’t a realistic option for your household.
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