|There’s a major sense of accomplishment and peace of mind of owning your home outright. Paying off your mortgage sooner can make sound financial sense by saving you thousands of dollars in interest costs. Learning how to save on your mortgage can slice years off your loan. Finding out if you can save on your mortgage payments won’t cost you anything, and you will discover whether you have the best loan available for your individual circumstances.
1- Shop around for the best mortgage possible with your credit score. When a mortgage company has a small overhead cost to stay in business it typically means that they will not charge you unreasonable ongoing service fees. Make sure you know the fees charged by your mortgage company before you sign on a loan.
2- Select weekly or bi-weekly mortgage payments. A bi-weekly mortgage payment means you’re making 26 half-payments instead of 12 monthly payments. But keep in mind that unless your initial mortgage is set up as bi-weekly, some lenders charge an upfront fee of $300-$400 to make bi-weekly payments, and even though you’re making a payment every two weeks, the lender only applies it once a month.
If you make bi-weekly payments of $415 instead of monthly payments of $830, you could save almost $27,000 in interest over the entire amortization period of your mortgage, and you could own your home about 4-1/2 years sooner.
3- Prepay a little extra every month, or any time during the term of your mortgage. Increasing your payment by even a few dollars each month will pay down your principal amount faster. It is a good idea to pay 10-15% more each month. This amount shouldn’t put too much extra burden on you, and it will help to pay off your mortgage much faster. For example, if you increased your mortgage payments by just $170 from $830 to $1,000, you could save almost $48,000 in interest over the entire amortization period of your mortgage, and you could own your home about 8 years sooner.
4. Make an annual lump sum payment. Use your tax refund, work bonus or any extra money you can save and apply it directly to your principal amount. Check your mortgage documents to find out how often you can prepay and in what amount. Many loans don’t prohibit you from doing this, however the lender may have parameters on how many extra payments you can make. Ask this question when shopping for a mortgage loan.
5. Pay as much as you can at renewal time. Most mortgages become open at renewal. This means you can pay as much as you want on your mortgage. If you chose a 5-year, fixed-rate term, and made a $10,000 lump-sum payment every time your mortgage came up for renewal, you would save about $37,481 in interest over the entire amortization period of your mortgage.
6. Red flag your extra payments. Always check your mortgage statement to make sure that any extra payments you made are being counted against the principal and that your bank has accurately documented your payments. Make the extra principal payments on a separate cheque and make a note on the memo line stating that the payment should be applied to principal reduction only. At tax time, tally up those payments and make sure they’ve been applied correctly.
7. Stay informed. Once you have a mortgage, aside from making the payments, it’s easy to forget about it altogether. By keeping up-to-date on interest rates and new products could save you money. You may want to shop for another product that better suits your needs. For example, to qualify for a mortgage, you may have started out with a lower-rate adjustable rate mortgage, but you want to switch to a more long-term affordable fixed-rate mortgage later.
When You Should Hold Off on Paying Your Mortgage Faster?
While paying down a mortgage quickly may be a wise decision for many homeowners, it’s not for everyone. For example, you may want to switch to investing in mutual funds when yields return 10-12% annually. For most people though, this is not a mathematical issue but one of security, as they just want that mortgage paid off. For people who are very debt-averse, the peace of mind of paying off the house more quickly is worth the price.
Secondly, if you are planning on moving soon, you may want to hold off investing money into your existing home as you may need the money for a down-payment, closing costs or buying new furniture for your new home.
As you can see, with a little research, you could save on your mortgage. The truth is: the banks won’t tell you how to save money on your mortgage as they want to make the interest on the money that they have loaned to you. If they were to help you save money, they would lose money and their profits would stagnate. Make sure that if you implement changes to save on your mortgage it is the right decision for you.
Market Watch – August 2008
In the City of Toronto 3,132 sales were recorded, down 14% from the 3,640 transactions in July 2007, but up 10% from the 2,852 sales recorded two years ago in 2006. Comparing July 2007 with July 2006, a period before the Land Transfer tax went into effect in Toronto, sales increased 28%.
In July, certain neighbourhoods throughout the GTA experienced a remarkable increase is sales activity. Whitby, Brampton, Uxbridge recorded a 23-25% increase in sales compared to a year ago, based primarily on semi-detached home sales. The Annex recorded a 29% sales increase due to strong detached home and condominium apartment sales.
“While homeowners continue to see healthy returns, it is taking slightly longer to achieve a sale. The average time on market has increased to 33 days compared to 31 days a year ago,” said Ms. Maureen O’Neill, President of Toronto Real Estate Board. “This may be due to that fact that there are now more choices available to the homebuyer. There are currently 26,543 active listings: a 28% increase from a year ago.”
For sellers right now, you’ll need every bit of expertise and knowledge from your REALTOR to establish a competitive price. We can show you how your home stacks up with the vast number of comparable homes on the market and will make recommendations as to its presentation, price and marketing strategy to ensure it gets sold.
Have a great month!
P.S. I am never too busy for your referrals!