Bi-Weekly And Weekly Payments
Most mortgages have the option allowing payments to be made on a weekly or bi-weekly basis. This option may be desirable for two reasons. The first, it can save you money as you can expect to payoff your mortgage about four years sooner, significantly reducing your interest costs over the life of your mortgage. The second, if your employer pays you on a weekly or bi-weekly basis, you can simplify your budgeting by making your payments line up with the way you are paid.
Making Extra Payments
Paying extra amounts on your mortgage can result in large interest savings over the life of the mortgage. When selecting a mortgage company, privilege payment options are something that to look for. A 20% privilege payment will allow you to payoff 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 make smaller payments on the mortgage and as often as you wish. An extra $1,000 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 80% 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 maximum premium of 3.15% is added to the mortgage. By increasing the down payment to 10% of the purchase price, the minimum premium can be reduced to 2.00%. If you put down 20%, you can avoid any additional insurance fee. Depending on your situation, there may be opportunities for you to structure your financing to avoid the CMHC or GE insurance premium.
Advantages Of Bigger Down Payments
As mentioned above, when you put a 20% down payment on your purchase you can avoid the Insurance 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 Versus 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 may have savings. Typically, the shorter the term or guarantee of the rate, the lower the rate. This does not always happen, as it will depend on the market place and the economy at the time, but history indicates that short-term rates tend to be lower than long-term rates. The up side of the 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 potentially increased payments. Consideration of projections of interest rates can also be important in this decision. Make sure you talk to an expert when you are making this decision.
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