WEEKLY or BI-WEEKLY?
Most mortgages have an option to allow monhly, bi-weekly or weekly payments. Choosing bi-weekly or weekly might be desirable for two reasons. Increasing the frequency of payments can cut the repayment time by about four years. That represents dramatic savings over the course of a mortgage. Also, if your employer pays you on a weekly or bi-weekly basis, you can simplify your budgeting by making the payment line up with the way you are paid.
MAKING EXTRA PAYMENTS
Paying extra amounts on your mortgage can translate into substantial interest savings over time because extra payments are applied directly to the principal, whereas a substantial part of a regular mortgage payment goes to pay interest. When selecting a mortgage lender, ask about repayment privileges. A 20% privilege payment will allow you to pay off up to $20,000 per year on a $100,000 mortgage. Flexibility is also important. Will you be able to make as many small and frequent extra payments as you wish? An extra $1000 periodically paid on a mortgage can help you become mortgage-free faster.
IF POSSIBLE AVOID MORTGAGE INSURANCE
When you require a mortgage for more than 80% of the purchase price of a property, that mortgage must be insured by either Canada Mortgage and Housing Corp. (CMHC) or GE Mortgage insurance. If you put five per cent down, a premium of 3.75% is added to the mortgage. By increasing the down payment to 10 per cent, the premium is reduced to 2.5 per cent.
GOING LONG or SHORT, FIXED or VARIABLE
Mortgage options can be dizzying. You can choose a variable rate mortgage with an interest rate that fluctuates with changes in the economy, or lock into a fixed rate that won't rise or fall during the term of the loan. If you like stability and knowing exactly how much your mortgage will cost, locking into a fixed rate might be for you. If you have a higher risk tolerance and don't mind monitoring the mortgage market, then a variable rate might work for you. Interest rates for short-term mortgages tend to be lower than those for longer terms. Locking in for three to five years is a good option if you have better things to do than monitor mortgage rates.
WHY NOT WORK WITH A MORTGAGE BROKER?
Discuss your home purchasing plans with your bank. You will almost certainly be offered a discount on the bank's posted mortgage rate. But don't stop there. Why not speak to mortgage broker? These specialists work with a wide number or lenders and can find mortgage deals. Did you know that if you personally make credit inquiries to several banks, those inquiries are registered on your credit report and could have a negative effect on your credit score? Why not let a mortgage broker do the running around at no cost to you.