Bi-weekly and weekly mortgage payments
Almost all mortgage companies and banks will have the option to allow you to make payments weekly or bi-weekly. There are two very good reasons why you should consider this.. Firstly you will pay off your mortgage sooner, normally around 4 years sooner than the monthly payment option. This will in effect mean you save 4 years of payments over the term of your mortgage. Secondly, if you are paid weekly or bi-weekly it makes it easier for you to budget paying your mortgage, as you can line up your payment with the dates that you receive your pay cheque.
Making Extra mortgage payments
If you have the spare cash making extra mortgage payments can save you huge amounts of interest. When you select your mortgage company or bank, as them about the option of making extra payments. If you are allowed to make extra payments of say 25% this will allow you to make additional payments of up to $25,000 per year on each $100 000 of mortgage. It is also important to make sure that your bank or mortgage company allows these additional payments to be flexible, so that you can make payments of smaller amounts when you can afford it, this will again reduce the term of your mortgage and in turn mean that you pay less interest.
Reducing the CMHC fees on your purchase
When you require a mortgage in Canada for more than 75% of the purchase price of a property, that mortgage must be insured by Canada Mortgage and Housing (CMHC) or GE Mortgage insurance. The premium charged by both of these company`s decreases as the down payment increases. But if you can put down 25% of the purchase price, you can avoid any additional insurance fee whatsoever. Depending on your situation there are ways that you can structure this financing to avoid the CMHC or GE insurance premium.
Advantages of Bigger Down Payments
As mentioned above, when you put a 25% down payment on your purchase you can avoid the CMHC premium in Canada. However more importantly the larger the down payment, the lower the amount of interest you will pay over the life of your mortgage and the lower amount you will be paying monthly. But please remember, do not stretch yourself to increase your down payment and end up borrowing on credit cards or a line of credit at a higher rate, as this will mean you will be paying higher amount of interest on these amounts and maybe up to 4 or 5 times the current mortgage interest rate.
Short Term Rates vs. Long Term Rates
The rate options for mortgages available can be very confusing for most mortgage shoppers. Terms for mortgages vary between variable and fixed rate, 6-month terms to 10 year terms and even longer in the US. By taking a variable or floating rate mortgage you can make savings. Typically the shorter the term or guarantee of the rate, the lower the rate will be. However, this does not always happen, depending on the market place and the economy, but history has shown that short-term rates tend to be lower than long-term rates. The up side of variable rate is the strong potential for interest rate savings. The down side is the fact that you are accepting the interest rate risk without a guarantee, but today many companies will let you lock in at a rate further down the road. If you are considering a variable rate mortgage you need to look at your own risk tolerance, and your cash flow available to deal with potential increased payment. Considering projections of rates and where we see interest rates heading can also be important in this decision. Make sure you talk to an expert when you are making this decision and shop around, mortgages rates do vary and the rate displayed is often not the best rate available.
Alan Read Chua to a Toronto Condo Real Estate Agent, Susan Pimento is a Mortgage Broker in Ontario who will find you the best Canadian Mortgage Quote
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