Purchasing your home is one of the biggest and most important decisions that you can make. In the latest Saskatoon Mortgage tip we explain how you can pay your mortgage down faster!
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
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.
- 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An accelerated bi-weekly mortgage payment is when your monthly mortgage payment is divided by two, and the amount is withdrawn from your bank account every two weeks
(vs a Semi-Monthly payment: your monthly mortgage payment is divided by two and the amount is withdrawn on the 1st and 15th (twice per month) VS every 2 weeks.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
OPTION (1)
MONTHLY required payment (assuming Prime stays at 2.45%)=$1552.15/month
Balance at maturity making MONTHLY payments=$326,422.03
OPTION (2)
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:
OPTION (3)
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)
Prepayment Options:
Every lender has flexible prepayment options (allowing you to make extra payments on the mortgage throughout 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 throughout 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.
- HRun 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!
Whether you’re buying a house for the first time, the second or the seventh time, it’s still one of the biggest decisions you ever have to make. In order to ensure sheer success, you need Trusted Saskatoon Realtor Clark Dziadyk! Clark will ease your mind by taking the pressure off of you to find your dream home! Be assured Saskatoon Real Estate Agent Clark Dziadyk puts 100% effort into everything he does. He shares regular Saskatoon Real Estate Expert Tips with us and in his latest tip he shares RBC’s home-buying checklist for newcomers to Saskatoon.
Home-Buying Checklist for Newcomers
1. Figure out what you can afford.
Before you start looking for a home, get a general idea of how much you may be able to afford and what your mortgage payments would be. This will help you set a realistic price range so you can balance home ownership with your lifestyle needs.
2. Save for your down payment (if applicable).
Considering the high cost of homeownership in Canada, most newcomers (and most Canadians) don’t pay the full price of their homes all at once. Typically, buyers make a down payment on a home using money they've saved and then borrow the rest (through a mortgage) from a lender.
3. Understand your mortgage options.
There are a lot of mortgage features to choose from in Canada, and Saskatoon. Talking to a mortgage specialist is one of the best ways to make sense of all the options, and to help you save money over the lifetime of your mortgage.
4. Get a mortgage pre-approval.
Once you’re ready to buy a home, be sure to get a mortgage pre-approval. A pre-approved mortgage means the bank has made a commitment (subject to conditions such as a property valuation) to loan you the money for your home.
- You’ll know how much you can afford to borrow for your new home.
- You’ll be in a better position to negotiate with sellers once you have found a home.
- You’ll also know your interest rate.
Hire a reputable local real estate agent Clark Dziadyk! Your agent, like your mortgage specialist, can be an invaluable resource for you throughout the entire home-buying experience.
6. Start your home search!
As you start looking at homes, don’t just think about the type of home you want—also think about your lifestyle and how close you want to live near amenities such as schools, highways, medical services, shopping, restaurants and recreation.
f you are in the market to sell or buy a home, check out the links below!
'The Realtor® in Your Neighbourhood'
Homebuilders Deals & Incentives on New Construction
Mike and Crystal Green couldn’t have picked a worse time to look for a new home. In mid-February, Mike was offered a promotion to be a regional sales manager at a computer security company. The catch was the couple would need to relocate
The Greens accepted an offer on their home two days after it went on the market in early March. But by then, the Greens didn’t feel safe flying to check out houses given the coronavirus pandemic. The government was urging workers to stay home if possible and practice social distancing when out in public to combat the spread of the coronavirus.
That wound up working in their favour. The Greens went online and took a virtual tour of a home they liked. It was in a new development. They were able to choose custom details via Zoom and email—and got a discount on their new home
If they closed in March, and the builder would throw in a free Whirlpool refrigerator, washer, and dryer as well.
The Greens have plenty of company on the receiving end of a wave of aggressive incentives for buyers of new construction. With a global health crisis raging and the ensuing financial fallout with many workers laid off, homebuilders around North America are offering discounts, throwing in freebies, and covering closing costs to attract buyers and close deals.
They had to do something. Tours of new-homes have dropped and more potential buyers deciding to put off their new home searches until things truly settle.
CMHC
2020 summer edition of the Housing Market Outlook report provides forecasts for Vancouver, Calgary, Edmonton, Toronto, Ottawa and Montreal. It builds on the Spring 2020 edition that focused on housing market activity for Canada and the provinces.
These reports give high and low range projections on new construction, home sales, house prices and rental market activity.
Housing forecast overview for Canada’s major urban centres
- Sales and construction have dropped
- House prices will likely fall because of uncertainty over the economy’s path
- It is possible that vacancy rates increase in the rental market
- Recovery in major markets is highly uncertain and will vary considerably
For Canada’s 3 largest cities, there had been steep employment declines according to Statistics Canada:
- 18% in Montreal
- 17% in Vancouver
- 15% in Toronto
Such large employment and income declines, coupled with uncertainty over the future trajectory of the virus, will lower the demand for housing in the urban centres. Housing starts should rebound by year-end, as projects, settled before the pandemic, should be starting soon. Rental apartment starts will benefit from the slowdown in the demand for homeownership.
By 2022, housing prices should be following a slight upward trend and even exceed their pre-pandemic levels.
Buyers may also get deals on custom homes
While deals on newly constructed homes abound, buyers can also shop around for discounted lots where they can have their dream homes built.
Buying a home is one of the most important and exciting steps in your life.... now that pesky financing! Deal with people who can offer you and your family the best options for you.
CONSIDERING A REVENUE PROPERTY IN SASKATOON?
When it comes to a revenue property having options and the best rate possible are at the top of the list.
Buying an investment property is a popular option for Canadians looking at different ways to invest their money. However, unlike the mortgage you took out on your principal residence, financing an investment property is a little more complex.
1. How Many Revenue Properties
The number of units in the building and whether or not you'll be occupying one of the units are the two major components that control what your financing will look like. When you start shopping around for an investment property, the first thing you need to consider is the number of units your building will have. Most buildings with 1-4 units are zoned residential, so the qualification criteria and financing options from lenders are only slightly more difficult than that of a mortgage similar to what you have on your principal residence. If it's a multi-unit property, the second thing to consider is if you, the owner, will be living in one of the units or not. If you will be occupying one of the units, the property would be considered owner-occupied. If all of the units will be rented out, your property would be considered non-owner occupied.
However, buildings with 5 or more units are zoned commercial, so a lender would require that you take out a commercial mortgage on it. With a commercial mortgage, the qualification criteria is even tougher to meet and interest rates are often much higher.
2. Downpayment
An investor will have to put down at least 20 percent to buy a property from a typical bank... On top of the down payment, an investor will have to pay closing costs, which can range from two to four percent of the loan amount.
Buying a home is one of the most important and exciting steps in your life.... now that pesky financing! Deal with people who can offer you and your family the best options for you.
So How Does Your Phone Affect Your Mortgage Rates
What many people aren’t aware of is that your cell phone
payment history DOES affect your credit score.
Cell phone accounts work differently than a credit card or a
line of credit. A cell phone is an open or “O” account, which means the balance
has to be paid in full at the end of each month.
There is no such thing as a minimum payment with an “O”
account like there is with credit cards and lines of credit. You can’t just pay
a portion of your bill. The amount that you see on your statement has to be
paid in full otherwise your credit score will suffer.
Unfortunately, many Canadians don’t view paying their cell
phone bill in full or on time as being as important as other payments. Lenders
disagree. The bank underwriters (the people who review your application) are
thinking, “If you can’t make or keep track of a cell phone payment, what are
the chances that you are going to be responsible with your mortgage payment?”
Costly Missed Payments
Let’s take a look at one borrower, John, who was declined
for best-rate mortgage financing on the purchase of a new house because he had
three late payments on his cell phone bill during the last two years. His
argument wasn’t unique. “I called (the phone
company) before the payment was due and asked if I could pay half of the bill
this month and the remainder of the outstanding balance the following month,”
he said. “The customer service rep told me that it was okay to take a couple of
months to get caught up.”
Susan and Frank found themselves in a similar situation.
They were approved for mortgage financing but were then declined at the last
minute due to a recent late payment showing up on their report in the same week
they were supposed to be moving.
Arranging a mortgage and preparing for a move is stressful
enough without having a financing issue in the eleventh hour. In the end they
were able to find a resolution, but it resulted in a delayed closing. They had
to get approved by a different lender at a higher rate. In addition to all the
stress and time, this small mistake ended up costing them $3,459.28.
Despite what they tell you, late payments will continue to
be recorded until your account is caught up. Underwriters will look at an
applicant with an outstanding balance as someone who is not in control of their
finances. It will drop your score and hurt your chances of being approved for the best rates and terms.
A Matter of Principle
It’s common for consumers to not make a payment because they
were unfairly charged or they found a mistake on their bill. On principle, I
understand that you might not want to make the payment, however, even if you
are disputing the charge, it will not stop the negative item from showing up on
your credit report.
And keep in mind that one late payment can be enough to
negatively impact your best rates and terms for future financing. Your cell
phone company will start the collection process if an overdue balance is not
paid within 60 to 90 days.
As you can guess, a collection appearing on your report does
not help your credit score. Many of my clients echo my caution, and in
hindsight wished they had simply paid the bill in the first place. If you find
yourself in this situation, my suggestion is to clear the amount owing first
and then dispute the charges. That way it doesn’t lower your score or cause you
to get charged higher rates just because of one account.
Warning…Warning
If you have paid out or closed your cell
phone account, make sure you get something in writing to confirm that there is
no outstanding balance owing.
The same goes for an outstanding amount or settled
collection. Don’t take anyone’s word for it or assume that it will be updated
on your credit report. Are you starting to see a trend? Whatever you do, get a confirmation in writing! If you don’t, it will make trying to correct the error
even more difficult.
The only way to avoid having your cell phone report on both
Equifax and TransUnion is to go with a pay-as-you-go contract. If you are on
any other type of plan, keep your fingers crossed. You don’t want to be one of
the unlucky ones to have a cell phone error or problem tarnishing your credit.
To improve your chances of avoiding any issues, ensure you pay the full amount
owing each month and keep good records.