Unless you purchase your home with cash, you’ll need to budget for mortgage payments. Tips on making them less painful
Wendy Perry, a mortgage professional at Saskatoon-based Dominion Lending Centres North Star Mortgages, recommends the following four mortgage-interest manoeuvres.
Before buying a home, take the time to search for the best interest rate. It’s possible to do this yourself — by talking to banks about the rates competitors are offering — or it may be easier to go through a mortgage professional who has access to lenders across the country. The more ﬁnancial institutions compete for your business, the better rate you’re likely to get. For example, Perry, who has access to more than 90 lenders, has been able to ﬁnd her clients rates between 0.5 and one per cent below posted bank rates.
IMPROVE YOUR CREDIT SCORE
The higher your credit score, the better your mortgage interest rate may be, suggests Perry. A stellar score can often cut a rate by as much as one per cent and will also allow you to access more lenders. “Many lenders aren’t interested in people with very low scores because it’s too much risk,” Perry warns. Improve your score by regularly paying your bills on time and using less than 50 per cent of your total available credit. Visit genworth.ca to learn the myths and truths about what affects your credit rating.
“We’ve been trained to make mortgage payments once a month,” says Perry, “but there are other options.” You can reduce total interest signiﬁcantly if you pay bi-weekly or weekly. The actual payment will be about the same, but you’ll allow less time for interest to accumulate. For example, if you have a $300,000 mortgage at a three per cent ﬁxed rate with a monthly payment schedule, you’ll pay more than $125,000 in interest over 25 years. If you choose an accelerated bi-weekly plan, where you pay every two weeks, you’ll pay less than $110,000 in interest and you’ll eliminate your mortgage in a bit more than 22 years.
PAY A LUMP SUM
This option may be tricky for many homeowners, but most lenders allow you to pay a yearly lump sum of up to 20 per cent of the original loan. That might seem a hefty number, but any extra amount you can put towards your mortgage will help because the entire payment goes directly to the principal. Take that same $300,000 mortgage you pay off on a monthly basis. If you put an extra $5,000 toward it every year, you’ll save more than $42,000 in interest costs and pay off your mortgage seven years earlier. Increase that to $10,000 a year and your 25-year mortgage will be paid off in just 13 years.