Want to save money? Here are 6 tips that can help you save some money. Whether you are renewing your mortgage or just about to leap into home ownership, you must make sure you find a mortgage solution that makes the most sense for you.
1. Find out about breaking your mortgage penalties
This is a very important tip and one that is often overlooked. That is why I put it first. Did you know statistics indicate that 6 out of 10 mortgages are broken? That is greater than 50%!
A new job, transfer to a new school, marital status, a new addition to the family and winning the lottery are just a few of the reasons that could cause you to sell your home earlier than expected and thus resulting you to ‘break’ your mortgage.
There can be big penalties for breaking your mortgage. If you have a fixed rate you may have to pay a 3 months interest penalty OR the interest rate differential, whichever is greater!.
What is the interest rate differential?
It is a figure based on your current mortgage rates and your remaining mortgage balance. This can be in the tens of thousands.
Pro-tip: Be sure to know if the IRD is calculated with the ‘discounted’ rate or the (higher) posted rate will be applied on your mortgage. If you don’t know… Ask your lender!
2. Get more information on pre-payment options
When interest rates rise, the bigger portion of your monthly payments goes towards the interest instead of the principal. If you apply some pre-payment privileges, you can pay the principal down faster.
Pre-payment options are important and if you can provide more dollars and make one extra payment a year you can save thousands of dollars over the course of a 25 year mortgage and pay off your mortgage sooner.
Pro-tip: Some lenders may offer you their ‘best rate’ to ensure you cannot make any pre-payments during the term. Make sure you are not fooled and ask your broker or lender about your prepayment options
3. Choosing a bank or a broker
A mortgage broker can help you get a lower mortgage rate than if you go directly to the bank. The bank representative is there to do what is best for the bank. The mortgage broker is entirely free (only gets paid commission after you are confirmed for financing) and has access to more information, rates and products from multiple lenders. If you have more access to more options, you can get a better rate and a better fit for your lifestyle.
4. Make sure you have good credit
This one is important! Make sure you pay your bills on time and never let your debt exceed 35% above your limit. The best rates go to those with the best credit scores.
5. Research, Research, Research!
Here is a fun fact! The bank’s posted rates are usually not their lowest. Kind of like buying a car, never just go for the sticker price. Make sure you shop around as the more information about options you have, the better position you will be in when it comes time to negotiate.
6. Weigh the benefits of making a down payment of less than 20%
Most people believe making a down payment on your home with 20% or more guarantees you the ‘best’ rate. This is not always the case. Sorry to tell you that.
Many lenders (in fact most) have actually offered the best rates to high-ratio mortgage holders (the people who can pay less than 20% down).
The name of the game is reduce your risk and if you pay less than 20% down you need mortgage default insurance which obviously mitigates the risk to the lender and therefore allows them to pass those savings back to the bower (which is how you can have a lower rate).
There is lots of information here and I know it can be overwhelming. If you have any questions or would like more information please feel free to call me anytime at 604-202-9913 or email me at [email protected], I am happy to help.