Deciding on the Right Mortgage Term and Amortization Period

For many, the most confusing part of buying their first home is understanding the difference between a mortgage term and amortization period. In Canada, a typical mortgage has a five-year fixed-term with a 25-year amortization period.
That said, there is no one-size-fits-all approach, in fact, there are many factors a homeowner should consider when deciding what kind of mortgage term and amortization to choose.

How to Choose the Right Mortgage Term

Choosing the right mortgage term can be challenging, with terms typically ranging from six months to 10 years. The mortgage term is the length of time you commit to the current mortgage rate, the lender you chose, and the terms of the conditions.

The most popular mortgage in Canada is five years, but you can also get a mortgage term of one year, two years, six years, and 10 years. When you choose a mortgage term, you are locked in until the end of the agreed-upon period (or you can break your mortgage contract). What you commit to will mean you are either protected from rising rates or you pay more than you needed to.

At the end of the term, you will need to renew your mortgage on the remaining principle. Factors that will need to be reconsidered include frequency of payment, interest rate, and length of new term.

It’s important to understand the mortgage terms and what they mean for your bottom line. Choosing the right mortgage term can save you a lot of money over the lifetime of the mortgage.

Frequency of Payments

One of the biggest decisions you’ll make when you get a mortgage is how often you want to make your regular payments. There are actually six different payment frequencies you can choose from:

• Monthly (12 payments per year)
• Semi-Monthly (24 payments per year)
• Biweekly (26 payments per year)
• Weekly (52 payments per year)
• “Accelerated” Biweekly (26 payments per year)
• “Accelerated” Weekly (52 payments per year).

The accelerated options allow you to make extra payments against your principal; this will help you save on interest and reduce the length of time it takes you to pay off the entire mortgage. With accelerated payments, you make one extra monthly payment against your mortgage annually. But because the extra payment is spread out in small amounts over the course of the entire year, it’s easy to accommodate.

Length of Term

The length of the mortgage term you decide on will have a direct impact on the mortgage rate. Because borrowers want to save as much money as possible, they tend to lock into a longer term. A mortgage with a longer term provides more financial stability because the payments stay the same for the term of the mortgage. While this can provide peace of mind, you end up paying a premium.

Short-term mortgage rates are typically lower than long-term mortgage rates. That’s because it’s easier to predict where interest rates will be in the near term. It’s tougher to predict where interest rates will be five or 10 years down the road.

Some Canadian homeowners like knowing what their expenses will be. For others, a shorter term may be more attractive.

Choosing the Right Amortization Period

The amortization period is the length of time it will take you to pay off your mortgage in full. In 2008, before the recession, Canadians could get mortgages with amortization periods of 40 years.

All that changed after the recession and the U.S. housing market crash. In an effort to avoid the same issues in Canada, the Federal Government implemented a number of changes to Canadian mortgage rules.

Today, if your down payment is less than 20% of the purchase price of the home, the longest amortization period is 25 years. However, if your down payment is 20% or more of the purchase price, the maximum amortization period could be up to 30 years.

Choosing the amortization period that best suits your needs will determine how much or how little interest you pay during the life of the mortgage.

Shorter vs. Longer Amortization Periods

The most common amortization period in Canada is 25 years, but shorter and longer periods are available. Choosing a shorter or longer amortization period will depend on a number of different factors.

A shorter amortization period sounds great; you pay off the mortgage more quickly and pay less interest. A short amortization period is a great option for those who can afford higher monthly payments.

But it’s not for everyone. If you’re self-employed, your income is irregular, or you’re buying a home for the first time with a large mortgage, a short amortization period with higher payments that tie up your cash may not be the best option.

Most Canadians choose a longer amortization period because it lowers their mortgage payments. For some, this can be the difference between being able to buy a home and not being able to. Keep in mind, the longer the amortization period, the longer it will take you to pay the mortgage off, which means paying more in interest.

Minimum Age

You’re never too young to start planning for your future and save. But when it comes to purchasing a home in Canada, you need to be the age of majority. In Alberta, Saskatchewan, Manitoba, Ontario, Quebec, and Prince Edward Island, the age of majority is 18. In British Columbia, New Brunswick, Nova Scotia, Newfoundland, Nunavut, the Northwest Territories, and the Yukon, it’s age 19.

If you’re not the age of majority in the province you live in, you can still purchase a house, you just need to have a co-signer that is the age of majority.

Canadalend.com, Helping Canadians Pay off Their Mortgages Fast

If you’re looking to step onto the property ladder and want to determine what kind of mortgage is best for you, contact the independent, licensed mortgage professionals at Canadalend.com.

The mortgage experts at Canadalend.com can help you find the best mortgage rates and determine the best mortgage term and amortization period to suit your financial and lifestyle needs.

How can we get you better financial products than the big banks? Unlike the banks, which only sell their own mortgage products (whether they’re right for you or not), the independent agents at Canadalend.com have access to hundreds of different lenders. As a result, we can help you find a mortgage that meets your long-term goals.

The mortgage brokers at Canadalend.com can also get you pre-approved for a mortgage or loan in 24 hours or less.

To see what kind of mortgage or loan you qualify for, contact Canadalend.com today or apply online and a Canadalend.com mortgage specialist will set up an appointment for a free personal consultation at your earliest convenience.

Downtown: An Affordable Option for New Home Buyers

It sometimes feels like the normal path for many Torontonians is to grow up in the suburbs, move downtown as a young adult and continue to live there as a young professional only to eventually move back to the suburbs to “settle down”. Some of this is driven by the belief that it’s simply too expensive to raise a family or buy a home in the city.

The City Offers a Lot For Young Couples and Families

The energy and convenience of the city are attractive features, but there’s also a lot more to city living that young couples and families can take advantage of. For instance, there’s green spaces and an abundance of dog parks. Culture in many different forms and a variety of libraries and public events can easily offset monthly entertainment costs.

Can one Raise a Family in a Condo?  

This might be the biggest question of all. And while that debate may never be resolved, you’re left weighing the pros and cons. For instance, many families want extra space and a backyard for barbecuing and where their kids can run around. While you will most likely sacrifice some space, condos do offer more security and less hassle than homes. For instance, a rooftop terrace with a beautiful swimming pool (that you don’t have to clean) can replace a backyard. Condos are becoming more valuable assets as perceptions on their resale value and livability are changing. 

The Benefits of Living Downtown  

Say goodbye to the rat race and long commutes on the DVP or GO Train. Beyond that, you have access to public transportation and more daycares, public schools and children’s programming per capita. Being the thriving city that Toronto is, downtown offers a lot of free family-oriented festivals from Taste of the Danforth to Pedestrian Sundays to various Christmas markets. Why not take the TTC, ride your bikes or walk to these events, without worrying about parking or traffic.

Toronto can be a pricey city in many ways, similar to other metropolitan cities in the world. But if your dream is to stay in the city, it could result in a smart investment and the convenience and culture could outweigh having to landscape a large backyard.

Tired of renting and ready for a change? Contact Canadalend today to discuss your future of home ownership.

Source: http://www.toronto.com/guides/fall-fun-guide/free-events-and-things-to-do-in-toronto/

Top Tips for Paying Down Your Mortgage Fast

Paying off your mortgage faster is something most new homeowners strive for. After all, putting down a little extra every month, especially in the early years, can really shorten the life of a mortgage. It will also significantly lower the amount of interest you pay the lender.

Despite the benefits of paying down your mortgage sooner , saving money on interest, and being debt free, only 35% of Canadians take steps to actively pay off their mortgage faster.1 That means, 65% of Canadians who have a mortgage, needlessly pay off their loans as dictated by the banks. Over the long haul, this means more money in the banks’ vaults.

The fact is that paying off your mortgage faster can help you save a lot of money. Just how much depends on which strategies you use. If you’re ready to save some serious money, take a look at these easy ways to pay off your mortgage faster and put extra money in your pocket.

Accelerate the Payment Options

An easy way to pay off your mortgage faster is to increase the frequency of your payments . Most Canadians pay their mortgage monthly, but if you increase your mortgage payments to bi-weekly or weekly, the savings can be massive.

For example, if you have a $150,000 fixed-rate mortgage at 3.7%, amortized over 25 years, your monthly mortgage payment is around $765.00. Over that period of time, you’ll end up paying $79,447 in interest payments.

But, if you make weekly mortgage payments (52 payments a year), your mortgage loan payments will be $191.00 per week and it will take just 22 years to pay off. Best of all,
your interest payments will drop to $68,544.

Even accelerating your mortgage payments to bi-weekly can save you a lot and help you pay down your mortgage faster. Paying bi-weekly (26 payments a year) will mean mortgage payments of $382.00; it will shave three years off the mortgage and save you $10,784 in interest payments.

Increase the Amount of Your Mortgage Payments

One of the easiest ways to pay down your mortgage fast is by increasing how much you put down, even if it’s as little as $100.00 extra per month.

If you have a $250,000 mortgage at a rate of 3.49%, amortized over 25 years, the monthly payments will be around $1,250. Increase that amount by just $100.00 and you’ll end up saving $15,400 in interest and pay off your mortgage three years sooner.

Round Up Your Mortgage Payments

Every dollar counts when it comes to paying off your mortgage. Another great way to save on needless interest is to round up your mortgage payments. If your accelerated bi-weekly mortgage payment  is $228.00, round it up to $250.00 or even $300.00.

The extra $22.00 or $72.00 may not seem like a lot, but it adds up and will significantly decrease the amount you pay in interest and help pay off your mortgage faster. And the extra money you put down is small enough that it probably won’t impact your monthly budget.

Keep Mortgage Payments the Same Even if Rates Fall

If you renegotiate your mortgage and rates have fallen, keep the payment amount the same if possible. By keeping the payments the same, you’ll be able to pay down the principle much faster.

If you took out a $250,000 mortgage five years ago with a fixed interest rate of five percent, your monthly payments have been around $1,454. If you renew your mortgage and the bank gives you 2.99%, your monthly payments will drop to $1,224.

Instead of pocketing the extra $230.00 per month, keep your payments the same. Doing so will mean paying off your mortgage four years sooner. You’ll also save $15,700 in interest.

Pay a Lump Sum

Putting a lump sum of “found money”—that is money that comes from an unexpected source, like an inheritance, a raise or bonus from work, or income tax refund—on your mortgage can help you pay it off faster.

Making lump sum payments is a great way to pay down your mortgage faster because you’re not making higher monthly payments, you’re using found money. And because you didn’t expect that money in the first place, you probably won’t miss it.

Reduce Expenses and Increase Earnings

Reviewing your budget and finding places to reduce expenses is a good way to save extra money that can then be applied to your mortgage. It may not be easy, but cutting cable, switching car insurance provider, packing a lunch instead of going out, cutting back on new clothes, and even making coffee at home instead of going to a café can help you pay down your mortgage quickly.

Increasing earnings doesn’t necessarily mean finding a part-time job. It could mean taking on extra shifts at the office. No matter where the extra money comes from, it all helps pay down your mortgage faster.

Stay Updated on Interest Rates and Mortgage Options

Most Canadians have their mortgage payments automatically deducted from a bank account. It’s become so easy you can forget about it because it’s automatic. But it’s important to stay informed, that means keeping up to date on interest rates and new mortgage options.

For example, what if interest rates have dropped since you took out a mortgage, but you are only in the middle of a five-year fixed term? Knowing the penalties of breaking the mortgage and reapplying for one at a lower interest rate could save you thousands over the life of the mortgage.

The more information you have the better your chances are of paying down your mortgage faster.

Canadalend.com, Helping Canadians Pay off Their Mortgages Fast

Interest rates in Canada are expected to remain near record-low levels in 2017. If you’re a first-time home-buyer looking to refinance, or even consolidate debt, it’s an excellent time to talk to a licensed agent at Canadalend.com.

At Canadalend.com , our licensed, independent agents can help you figure out how much of a mortgage you can afford. They’ll also help you find the best financial products at the best rates.

How can we get you better financial products than the big banks? Unlike the banks, which only sell their own mortgage products (whether they’re right for you or not), the independent agents at Canadalend.com have access to hundreds of different lenders. As a result, we can help you find a mortgage that meets your financial needs and long-term lifestyle goals. That includes showing you what steps you can take to pay off your mortgage as fast as possible.

The mortgage brokers at Canadalend.com can also get you pre-approved for a mortgage or loan in 24-hours or less.

To see what kind of mortgage or loan you qualify for, contact Canadalend.com today or apply online and a Canadalend.com mortgage specialist will set up an appointment for a free personal consultation at your earliest convenience.

Source:
1. McFeat, T., “Paying off your mortgage faster can pay huge dividends,” CBC, July 28, 2014; http://www.cbc.ca/news/business/paying-off-your-mortgage-faster-can-pay-huge-dividends-1.2719753.

Applying for a Mortgage Isn’t Always Easy

Mortgages, by their very nature, are complicated. Many homeowners and prospective homeowners might not have the strongest foundation of knowledge on which to base decisions, and even those who do might have wrong information. When it comes to applying for a mortgage, there’s a ton of differing opinion.

Bad Advice Might Steer you in the Wrong Direction 

A quick Google search for anything to do with mortgages will quickly reveal contradicting opinions. How does someone looking for a mortgage approval sift through the bad advice and come to a solid conclusion? Remember, you don’t need a license or accreditation to share an opinion on the web.

Let’s look at some common mortgage advice that you might want to ignore:

#1: Getting a Mortgage Pre-approval Offers No Advantages

This tends to be a popular one and is simply not true. Some claim that you’re too early in the process or that it’s not official so why bother. The truth is, a pre-approval can make you more attractive to a seller if there are multiple bids. In addition, it gives you a framework on what you can spend.

#2: The Fine Print is Just Legal Mumbo Jumbo

Once you’re approved for a mortgage, there’s a lot of legalese that you’ll have to sort through. While it might feel daunting, there’s important information in there, and it shouldn’t be dismissed. Don’t think of it as fine print, instead, think of it important clauses that could make or break your deal.

#3: Avoid Being “House Poor” by Paying the Least Amount Every Month

Another common one is to avoid bi-weekly payments or accelerated payments or try to amortize over 30 years instead of 25 years. All of this can drag your mortgage out whereas fewer years and accelerated payments can chop months if not years off of your regular payments.

#4: Take Every Penny Offered by the Bank

This might be a tough one to ignore since it sounds so enticing, but it’s not sound advice. You need to stay within your budget and shop accordingly. You can enjoy life and find your dream home for a bit below your means, and this way, you can continue to save or top up your emergency fund.

This list could be a lot longer, but the point is, you need to consider all of the advice given to you and to choose what is best for you and your finances. The best piece of advice might be to do your research, be diligent and trust the experts.

Speaking of experts, if you want sound mortgage advice, contact Canadalend today.