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 that it can save you money, as you can expect to pay off your mortgage about 4 years sooner. This can be a dramatic saving, over the life of your mortgage.
The second reason 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 scheduling your mortgage payments, in line with your personal "pay days".
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.
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 companies is on a sliding scale, decreasing 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 are able to make a downpayment of 20%, you can avoid this manadaory insurance fee. Depending on your financial situation, there are ways that you can structure your financing to avoid the CMHC or GE insurance premium.
As mentioned above, when you put a 20% downpayment 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 lifetime of your mortgage.
However, it is important to note that it may not be to your benefit, to increase your downpaymnt by borrowing against credit cards or a line of credit, with a higher interest rate.
The available options for structuring your mortgage can be confusing for most buyers. Terms for mortgages vary between variable and fixed rate, 6-month terms to 10+ year terms. A variable or floating rate mortgage can provide savings. Typically the shorter the term, or guarantee of the rate, the lower the rate will be. Keep in mind, that this is not always the case; it is dependent on the current market place and state of the economy, but history has shown that short-term rates tend to be lower than long-term rates. The upside of a variable rate is the strong potential for interest rate savings. The downside is that you are accepting the interest rate risk without a guarantee. If you are considering a variable rate mortgage you need to consider your own risk tolerance, and the cash flow available to you, to deal with potential increased payments. Considering the projections of future interest rates is important in making this decision. Be sure to seek advice from an expert.