Purchasing your home is one of the biggest and most important decisions that you can make. Tammy Wandzura is a Trusted Saskatoon Mortgage broker and the team at Elite Mortgage Choice believe that buying a home should also be an exciting experience with little to NO stress. By trusting your Saskatoon Mortgage Broker, you are ensuring that any stress you may have had in previous encounters can be eliminated! Tammy truly believes that all you should have to worry about is opening the door to your new home for the very first time. In her latest Saskatoon Mortgage tip she shares how you can pay your mortgage down faster!
You found a house. You made an offer, and you got approved for your mortgage.
You locked down a phenomenal mortgage rate and chose a lender with flexible repayment options.
Don't Stop There
In this article, I share how there are LITTLE ways you can make a BIG impact on your mortgage’s overall balance and life (amortization).
If you chose a variable rate mortgage:
- Assuming you got a fantastic discount, your rate was (and likely still is) significantly lower than a fixed-rate mortgage.
- I STRONGLY suggest you use this opportunity as a strategy and increase your payments as soon as possible to what they would be equal to a fixed-rate mortgage payment
- That will mitigate some risk with fluctuating Bank of Canada Prime lending rate changes and avoid seeing a payment shock if rates move up a touch.
- Increasing your payment slightly will mitigate some long term risk in the variable vs fixed conversation.
- Assuming the Prime lending rate stays low, you will be saving significant interest in the first years of the mortgage, mitigating the risk of increases on the back end of the mortgage term.
- This strategy allows you to see the biggest ‘bang for your buck’ while rates are low.
- More money every month is going to your principal (vs interest) because rates are already so low
- Every penny in addition to your regular payment goes directly to your principal balance and pays down the mortgage significantly faster.
Payment Frequency Options:
There are multiple options on how you can make your payment
The TWO options that will save you the most money in interest will be ACCELERATED Biweekly and ACCELERATED Weekly
(the accelerated is the crucial part)
An accelerated bi-weekly mortgage payment is when your monthly mortgage payment is divided by two, and the amount is withdrawn from your bank account every two weeks
(vs a Semi-Monthly payment: your monthly mortgage payment is divided by two and the amount is withdrawn on the 1st and 15th (twice per month) VS every 2 weeks.
Let’s look at an example:
- The example below uses an example 5-year insured variable rate discount as of June 22/2021
- The example below is assuming the Bank of Canada Prime lending rate does not adjust through the entire 5-year term
- Bank of Canada Prime lending rate is subject to change (up or down)
- Lender discounts (variable and fixed) are subject to change
- The information below is for example and illustration purposes only
In June of 2021 you took a 5-year variable rate mortgage at Prime (2.45%) Less 1.10 =1.35%
- Purchase $400,000
- Downpayment (5%) $20,000
- A total mortgage with CMHC premium =$395,200.00
- Amortization=25 years
MONTHLY required payment (assuming Prime stays at 2.45%)=$1552.15/month
Balance at maturity making MONTHLY payments=$326,422.03
ACCELERATED BIWEEKLY required payment (assuming Prime stays at 2.45%)=$776.08/every 2 weeks (=approx $1681.50/m when we average it over the year)
Balance at maturity making ACCELERATED BIWEEKLY payments=$318,366.65
(that is a difference of $8055.38 owed in 5 years)
Taking it one step further:
Increase that minimum required payment (calculated on the low variable rate discount) to a payment equal to a fixed rate (we are using 2.09% in this example)
ACCELERATED BIWEEKLY =$845.35
Balance at maturity =$309,963.24
(that is a difference of $16,458.79 owed in 5 years)
Every lender has flexible prepayment options (allowing you to make extra payments on the mortgage through the year without penalty)
This can be done by increasing regular payments (usually a 10-20% increase per year option depending on the lender) OR by doing lump sum extra payments through the year.
Each lender has a different policy relating to this- but the flexibility is there, and we are here to help you navigate those options.
By considering OPTION (3) above – you are using your prepayment options to manipulate your payment and lower the amortization (life) and interest paid on the mortgage.
- Have us run some example amortization schedules for you so that you can see the different options and balances owed at maturity depending on your affordability
- Move-in, get your feet wet with the new bills for the first 3-6 months.
- Then do a review on if you can afford to do even a touch more than your required payment
- Every little bit counts!
- Need some help calculating your best options?
- We are happy to do complete reviews for our clients whenever you require some extra info! That is what we are here for ☺
Call Tammy Wandzura today Saskatoon mortgage needs OR visit www.elitemortgagechoice.com