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Bi-weekly and
weekly payments
Most mortgages have the option to allow payments to be made on a
weekly or bi-weekly basis. This option may be desirable for two
reasons. The first is it can save you money as you can expect to
pay off your mortgage about 4 years sooner. This can save you
dramatically over the life of your mortgage. The other reason
why these options are so popular is that 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 paid.
Making Extra payments
Paying extra amounts on your mortgage can make a big interest
saving over time. When we select a mortgage company, privilege
payments options are something that we look for. A 20% privilege
payment will allow you to pay off up to $20,000 per year on a
$100 000 mortgage. It is important that the privilege payment
also be flexible to allow you to pay smaller payments on the
mortgage and as often as you wish. An extra $1000 periodically
paid on a mortgage can help you become mortgage free faster.
Reducing
the CMHC fees on your purchase
When you require a mortgage 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 these company`s decreases as the down payment
increases. When you finance your property at 95%, a premium of
2.75% is added to the mortgage. By increasing the down payment
to 10% of the purchase price the premium can be reduced to 2.5%.
If you can put down 25%, you can avoid any additional insurance
fee. 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. More importantly the
larger the down payment, the lower the amount of interest you
will pay over the life of your mortgage. It is important to note
that it may not be wise to stretch yourself to increase your
down payment and end up borrowing on credit cards or a line of
credit at a higher rate.
Short Term
Rates vs. Long Term Rates
The 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. Taking
a variable or floating rate mortgage can have savings. Typically
the shorter the term or guarantee of the rate, the lower the
rate will be. 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. 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.
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