 Mortgage
Saavy - Seven Tactics to Savings
By Louise Simard-Young of the Mortgage Alliance Company of Canada
The start to saving money on your mortgage is to begin
by choosing the best lender for your
requirements. For instance, a mortgage broker is able to secure better than bank rates for
their clients, and this is just the beginning of how you can pay off your mortgage sooner.
Here are some ways to take advantage of the available mortgage features that can save you
thousands!
Tactic #1: Increase the frequency of your mortgage payments - Most
lenders will offer a variety of mortgage payment options from monthly, bi-monthly,
bi-weekly accelerated, and weekly. If you can manage to make your mortgage payments on a
bi-weekly accelerated schedule, you will effectively shave years off your mortgage because
you will be making two extra payments a year. Since a year has 12 months, if you paid
monthly, you would make twelve payments. A year has 52 weeks, so if you made bi-weekly
payments, you would make 26 payments.
Tactic #2: Take advantage of increasing payment options - When you sign
up for a mortgage, lenders may offer increased payment options. What that means is that
each year of your mortgage term you can increase your set payment by a certain amount from
10% to 25%. Every time you increase your payment, a larger portion of that payment goes
toward paying off the principal of the mortgage rather than the interest.
Tactic #3: Make lump sum payments - Each lender offers lump sum
prepayment options. Typically, banks offer anywhere from 10% to 25% lump sum prepayment
options. That means that you would be able to make extra payments that would accumulate up
to 10-25% of the original mortgage amount each calendar year without any penalty. Each
time you make a lump sum payment, the entire amount goes toward paying off the principal,
saving you a lot in interest in the long run.
Tactic #4: Shorter amortization period - The amortization period
represents the actual number of years it takes to repay a mortgage loan in full.
Therefore, a shorter amortization period would increase each mortgage payment, but you
would pay it off more quickly, resulting in substantial savings over the life of the
mortgage.
Tactic #5: Pay now, save now - The greater the down payment, the
smaller the mortgage. If you have 25% or more of the mortgage as a down payment, you will
avoid having to pay mortgage insurance. Mortgage insurance protects your lender against
payment default. The premiums range from 3.25% to 0.65% of the mortgage. These fees are
added to the mortgage amount, so if you can increase your down payment, you will save a
bundle in the long run.
Tactic #6: Switch/transfer or refinance for a better rate - If you are
currently in a mortgage with a high rate, you may want to consider transferring your
mortgage to another lender that offers a better rate. If you switch or transfer at the
time of renewal, most banks will pay most of the costs to win your new mortgage business
as long as you do not change the outstanding mortgage amount. Sometimes it may pay to
refinance your mortgage prior to the renewal date. If you do so, you will incur prepayment
penalties and other costs such as legal and appraisal, but if there is a much better rate
available to you, it definitely could be worth the exercise. If you can pay out your
mortgage penalty outside of the mortgage, then it could be considered a switch/transfer.
But if you need to roll the amount into the mortgage, then it would be considered a
refinance.
Tactic #7: Port your mortgage - If you currently hold a mortgage and
are considering moving, port (transfer) your current mortgage to your new home. If you
port your mortgage, you will avoid having to pay a prepayment penalty. When a mortgage is
ported, the lenders will blend the old mortgage with the new mortgage and you will have a
new blended rate for the remainder of the mortgage term.
Louise Simard-Young is a Mortgage Agent with The Mortgage
Alliance Company of Canada. For more information on mortgage option, contact Louise at
403.616.980, email louise.sy@mortgagesandmore.ca , or visit www.mortgagesandmore.ca
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