The House Team Of Mortgage Intellingence asked:


Just imagine  as you’re going through your favourite coffee drive-thru this week  that a well-dressed gentleman stops and offers you $11,000 for your medium double double. Who would hesitate? We’d take the cash. It’s not so far-fetched. In fact, if you take that coffee budget and apply it to your monthly mortgage payment  a mere $30 extra per month -you could save yourself about $11,000 over the life of your mortgage.

Most of us can accept the idea that we must borrow money to purchase a home. We look for the best mortgage, and then just keep doling out the money for as long as it takes to pay it off. Most Canadians choose to amortize their mortgage over 25 years. That’s a long financial commitment, and it could more than double the cost of your home. But with good planning  and a few smart tactics  you should be able to enjoy your mortgage-burning party much earlier.

Here are a few strategies for fast-tracking your mortgage:

1. Increase your monthly payments. Rather than choosing your amortization period first, ask yourself how much you can afford each month. For example, you may feel that you can afford $1,000 per month. You’re delighted when your $125,000 mortgage only demands an $800/month payment (at a 6% interest). But make a monthly payment of $1,000 instead, and you’ll shave 8.75 years and almost $46,000 off your total interest cost.

2. Take advantage of lower rates. In addition to reducing the overall interest component of your mortgage, you can take the opportunity to pay down more principal faster  simply by maintaining your original payment. You should even increase your payment if you can, to reap the benefits of the cheapest mortgage money in memory. Again, you could take years  and thousands of dollarsoff your ontario mortgage.

3. Tie mortgage payments to your pay schedule. Many Canadians are paid on a bi-weekly schedule. If you accelerate your payments to bi-weekly instead of monthly, you could improve your own cash flow and fit in an extra payment each year. That means that you’re paying off principal faster  leaving you with less interest to pay overall. It doesn’t seem like much but  like putting your coffee budget to work  the bi-weekly strategy can have you mortgage free four years sooner, with almost $22,000 in savings.

4. Use any bonuses, tax refunds or “found money” to pay down principal. This is especially valuable in the early years of your mortgage. If you receive an annual bonus or other lump-sum compensation, see if you can put it against the principal. An extra $1,000 per year is a great way to fast-track to mortgage-free!

5. Consolidate your loans into a new mortgage and use the savings to boost your payments. If you’re a homeowner with some equity, you can use your mortgage to consolidate your other loans: student loans, car loans, etc. Add the money you’ve been spending on loan payments to your mortgage payments, and you could see big savings in overall interest.

With ontario mortgage rates at historic lows, you should take the opportunity to get an expert mortgage analysis from an independent mortgage broker with access to mortgages from a wide spectrum of lenders. You’ve got a great opportunity to put some fast-track tactics in place. You’ll remember what a good decision you made at your mortgage-burning party.

Brian Jenkins asked:


As everyone knows, buying a home is stressful and one of the most important decisions that one has to make is what kind of mortgage to get. Choosing the mortgage that works best for you and addresses your specific needs can potentially save -or cost you -thousands of dollars over the length of the mortgage.

Perhaps the biggest decision is whether to take a fixed rate (FRM) or an adjustable (ARM) mortgage. A fixed rate mortgage is just that -the interest rate on your loan will not change even if interest rates go up or down. An adjustable rate mortgage will go up or down, depending on the prevailing interest rate at the time. It all depends on the state of the economy, your personal and financial situation and just how much of a risk you want to take. Around 70% of all mortgages are fixed rate.

A fixed rate mortgage offers stability -you do not need to worry about your monthly payment going up, although you may be missing out on a better rate. An adjustable rate mortgage carries an interest rate that is connected to the prevailing market rate -the monthly mortgage payment will be more or less, depending on what the market rate is doing. An adjustable rate mortgage does offer some safeguard – there may be a limit on the amount the rate can change during a certain period; there may also be a limit on the amount that rates can be increased over the length of the loan.

A change in the interest rate can mean a big difference in how much you pay for your home. An interest rate of just one point less can mean a savings of around $50,000 on the average thirty-year mortgage and around $5,000 on the average 15-year mortgage. In addition, an increase in the interest rate of just one or two percent can mean monthly payments that are between $50 and $250 higher. Another option is to take out the fixed rate mortgage and then re-finance if interest rates go lower.

The length or term of the mortgage is also important. Most home buyers opt for the traditional 15 or 30 year mortgage, but it is also possible to take out a mortgage that is 10, 25 or even 40 years. It all depends on how much you can afford to pay each month and how quickly you want to own your home outright -obviously, the shorter the term of the mortgage, the higher your monthly payments are.

It is also possible to take out a 30-year mortgage and when you can afford it, pay more towards the principal, thus making the term shorter. Simply making an extra payment a month will significantly reduce the term of the mortgage -as well as saving a substantial amount in interest charges. If you pay extra, make sure the payment is going towards the principal, rather than the interest.

There are some other options available. An option adjustable rate loan has an interest rate that adjusts every month -it allows homebuyers to enjoy lower monthly payment amounts at first and then to make higher payments later, when they can better afford it. A so-called balloon mortgage offers a payment schedule similar to the traditional 30 year mortgage -but with a shorter term of up to seven years. At the end of the term, the buyer must pay the outstanding balance.

You may also be eligible for an FHA (Federal Housing Authority) loan -a fixed rate mortgage that is designed for home buyers with a low income or poor credit, who are buying a home for the first time. An FHA loan usually requires less of a down payment and offesr a lower interest rate than a regular mortgage. An FHA mortgage loan is also secured to the lender in the event of default by the purchaser.

Another option is a VA (Veteran’s Affairs) mortgage, which applies to buyers who have experience of serving in the military, as well as a surviving spouse. VA loans have several advantages – it’s possible to get a mortgage with little or no down payment, the loans are assumable and there is no penalty for prepaying the loan. However there is a maximum loan amount – in most states this is $417,000 -and you still have to qualify as far as income and credit are concerned.

Your home is probably the biggest single purchase you will make. It is worth taking the time to find the mortgage option that works best for you. The types of mortgages that are available all affect your payments differently. The type of mortgage chosen mostly depends on personal income and the length of time in which you are looking to pay for the mortgage.