Mortgages Are Interest Heavy In Favour Of The Lender – Learn How To Tr…
A home is an extremely important buy for you and your family. It is also an expensive one. When you come from a rental situation to one of ownership, there are many new costs involved. The largest of these will undoubtedly be your mortgage. Whether you have a traditional mortgage or one that requires CMHC insurance, there are ways to ‘trim’ years off the payments, which in turn saves you money in the long run. Most Canadians usually take out a 25 year mortgage with an amortization period of 5 years, make the payments monthly, and let it go at that. By doing this method the Lender (bank, trust company etc.) makes more money from you in the form of interest over the long haul. Below are some ways to help you save.
Change Your Payment Frequency
By this I average ‘when’ you make your payments as opposed to the ‘amount’ of your payments. As mentioned most homeowners pay their mortgage down on a monthly basis, but by changing the ‘frequency’ from that once a month to every two weeks (bi-weekly) or already weekly, you can potentially save money, and cut years off the amortization schedule. This occurs because the loan you took out with your financial institution is being paid off faster, and consequently you will be paying less interest over time.
Making additional Payments
Most mortgages have this kind of payment privilege built-in, but if not, be sure to ask your mortgage broker for more details as this is another great way to cut years off the amortization schedule. additional payments essentially are applied directly to the rule loan amount. For example: a 20% privilege payment will allow you to pay off up to $20,000 per year on a $100,000 mortgage. Remember, these payments are on top of your regular mortgage payments. Another thing to observe is that it is important that the privilege payment also be flexible to allow you to pay smaller payments against the rule, and as often as you wish or can.
A Larger Down Payment
As mentioned if you put 20% down then this is considered a ‘traditional’ mortgage, and CMHC insurance is not needed so money will be saved closest. But more importantly by giving a larger down payment the amount of interest paid over the life of your mortgage will be considerably reduced as your mortgage is of a lessor original amount.
Other avenues to consider with regard to saving money is whether to take out a short or long-term mortgage, and whether to go with a variable or fixed rate. As always it is best to talk to your financial advisor or mortgage specialist on options that are best appropriate to you, and your situation.
in addition, remember that if you take out a mortgage for a long-term (say, 10 years at 7 percent), and then find later on you want to break this mortgage as rates have dropped (to maybe 4 percent), there can be an expensive penalty placed on your by the institution holding your mortgage. Ask what this penalty is, and then factor it into your calculations to see if it truly is worthwhile to ‘break’ your current mortgage.