Common Sense Ways to Trim Years Off Your Mortgage
Shop around! Bank employees are paid to protect the bank, and getting the right mortgage from them usually involves playing games. Why waste your time? Getting a good interest rate is crucial, but don’t forget, flexibility and options are also important. Talk to a mortgage professional who can give you impartial advice and is not tied to any one specific lender.
Whether applying for a credit card, personal loan, or a mortgage all creditors will want to review your credit history. The best thing you can do is to avoid consumer debt as much as possible, always pay your bills on time, and the less you inquire for credit the better. Visit Equifax to get a free copy of your credit report. Your credit history can affect more aspects of your life than you think.
Match the frequency of your mortgage payments with the frequency of your pay periods. Not only is it easier to budget and monitor your cash flow, you’ll shave years off your amortization. Bi-weekly payments, for example, means you’ll make 26 payments in a year, equal to 13 monthly payments instead of 12. It’s this “accelerated” pace of repayment that allows you to repay your principal quicker, saving you money in interest.
For some homebuyers with budgeting room, see what your payments would be with a 20-year amortization instead of 25 years. In return for slightly higher payments, you could shave 5 years off your amortization, build equity in your home quicker, and be well on the road to being mortgage-free sooner. For existing homeowners who are now renewing mortgages at much lower interest rates, instead of taking the lower payment, keep the payments the same or make them higher, and shorten your amortization.
Many borrowers consider pre-payment privileges an important feature when taking out a mortgage, yet only 3% of consumers actually take advantage of them. Extra payments go directly in your pocket, either by paying less interest, building equity more quickly, or being mortgage-free sooner. Every dollar you pay over and above your regular mortgage payment goes directly to principal. That means that whenever possible, a few hundred dollars here and there can quickly add up to a few thousand saved later on.
While it varies with each lender, most financial institutions will allow a lump sum prepayment up to a maximum of 25% of the original mortgage amount in any one calendar year. This privilege is usually not cumulative so if you don’t use it, you lose it – you can’t carry them forward. Most people make the mistake of thinking all or nothing. If they can’t come up with a substantial prepayment they don’t bother at all. Even small extra payments could pay big dividends later on. Income tax refunds (or any portion of) are tailor-made for extra payments of principal on a mortgage.
A forced savings plan is exactly the kind of discipline that leads to powerful money saving benefits, especially for those whose income is steadily increasing. A new promotion or raise, maybe a spouse has recently returned to work, or an unfinished basement was converted to a rental suite, surely some of this new money could be used towards paying off the mortgage by permanently increasing your mortgage payments.
Many people struggle with saving for a down payment and it still remains the single biggest obstacle to home-ownership. However, recently many financial institutions have come up with a program that lets you buy with No Money Down. It’s not for everyone and just remember, all other things being equal, the bigger the down payment the better. Don’t forget the current Home Buyers’ Plan permits first-time homebuyer’s to use up to $20,000 each from their RRSP’s, that’s $40,000 per couple.
Life and disability protection are an important cornerstone of any family’s overall financial health. Though most lenders offer creditor life insurance, you’re not required to buy it. The bank owns group plans and you have no ability to designate a beneficiary. Coverage amount is limited to exactly your mortgage amount, no more no less, and it’s the bank that’s insured, not your family. It may be easier and more convenient to purchase insurance through your lender, however it is often more expensive.
It seems like lenders are introducing products with new bells and whistles on a regular basis. Understand the programs and who they are likely to benefit and why. As long as you know the cost and benefits, the risk and the rewards, you can make an informed decision. Too many borrowers make decisions based on what they heard from a friend, what they read in the newspaper, what their parents advised, etc…
With more and more banks and lending institutions competing for your mortgage business, it’s tough to determine which mortgage is best for you. The good news is that you really do have options. Your independent Mortgage Consultant should be willing to work with you every step of the way; from talking about long-term financial goals and how to achieve them, to eventually finding a lender best suited for your needs. At Mortgage Alliance, we do the shopping for you and aggressively negotiate on your behalf so you don’t have to. That saves you time and stress and best of all, our services are usually free (OAC).
Call me at 416 909 5044 to find out how you can become mortgage free sooner. Also, inquire about our mortgage contest.