Lowering The Cost of Your Mortgage

Mortgages are arguably the largest loan the average Canadian will take out in their lifetime. With housing prices inflating by record amounts each year, it can be difficult for first-time buyers to budget their finances in order to purchase a home and keep up with the ongoing costs associated with it. With a loan that can run upwards of several hundred thousand dollars, every penny counts! So here are some ways you can lower the total cost of your mortgage.

Making Additional Payments

Increasing monthly payments

At the beginning of a term, you can choose to increase your monthly payments by a certain amount that will differ on a case by case basis. Increasing the payment amount, even by a little, can make a huge difference in the long run because you will be reducing the amount of interest you pay. Usually, payments can only be increased by a certain amount each year and if you pass the limits set by your prepayment privileges, you may have to pay a penalty fine. Don’t overpay!

Lump-sum payments

Additionally, with your monthly payments you may also be able to make occasional or regular lump sum payments. Lump sum payments can’t be made at just any time; the specifics of when such payments can be made are variable and will be stated in your mortgage contract. You may be able to make them at the end of your term or set specific dates in your contract. Lump sum payments can also help you reduce the amount of interest you pay on your loan and potentially save you thousands of dollars.

Accelerated Mortgage Payments

Through accelerated payment options, you can make multiple payments a month rather than just one, usually through weekly or biweekly payments. The payments aren’t as large as monthly payments, but add up to the equivalent of paying one extra monthly payment per year. This seems like a small amount, but it can actually add up quickly and take off a couple years from your amortization period!

• TIP!

  When renewing your mortgage at the end of your term, try to keep your monthly payment amount the same even if your interest rate decreases. This will allow you to pay a larger sum toward your principal every month, which will inadvertently decrease the interest that incurs on it!

Shorten the Amortization Period

It’s no surprise that the longer a balance goes unpaid, the more interest it will end up incurring. Mortgage loans are expensive to begin with, but a huge chunk of the cost actually comes from all of the interest that is added to the original loan during the amortization period–around an average of 30 years worth of interest. An effective way to decrease the total cost of your mortgage is to minimize how long you are in debt. 

Shortening your amortization period even just by 5 years can greatly reduce the total cost of your mortgage, because it eliminates the interest that is being compounded. The downside of shortening the loan period is that your monthly payments will be higher. However, with proper budgeting, it can end up being the better option for a lot of Canadians!