The following post is by Chris Molder, a mortgage broker with Tridac Corporation Ltd. – The Mortgage Centre in Toronto.
Being thrifty and saving money is where it’s at these days. All you have to do is look at the proliferation of television programming focused on debt and personal finance, to know how money-conscious Canadians are becoming. There are so many ways to save a buck now but, when it comes to mortgage financing, few borrowers truly understand how to reduce their mortgage expenses beyond simply looking for a low mortgage rate.
First, let’s be clear. Shopping around for a low interest rate will absolutely save you money over the terms and amortization period of your mortgage. But if you want to truly save money on your mortgage, you need to understand that you have more options to choose from than what interest rate you will pay. Not sure what I mean? Consider this for a moment…
If you see a carton of eggs on sale for $2.99, and you buy it, nothing that you do in the future will ever change the cost of those eggs – $2.99 is what you paid, period. Now, when it comes to your mortgage, what price are you attracted to upfront? You guessed it – the interest rate. But, unlike the eggs, the interest rate does not determine the total cost that you will pay over the life of your mortgage. There is one more major decision you need to make and that is the frequency in which you will make your mortgage payments.
Let me explain further with a simple example:
Samantha needs a $250,000 mortgage, which she negotiates through a mortgage broker off Ratehub.ca at an interest rate of 3.09 per cent. But Samantha’s decisions aren’t done there. Now Samantha needs to consider how frequently she will make payments on her new mortgage. In this example, Samantha is looking at the difference between making monthly and accelerated bi-weekly mortgage payments.
At a quick glance, it looks as though Samantha’s monthly payment is just divided in half and paid bi-weekly. But what that means is that Samantha would be making a total of 26 payments each year, or one extra monthly payment. By choosing to make one extra monthly payment each year, what will happen to Samantha’s mortgage over time?
This table shows that by choosing to make accelerated bi-weekly payments over monthly payments, Samantha would shave almost 3 years off her amortization period and a total of $13,493.92 of interest. Not only would she be saving money, she’d be paying off her debt almost 3 years sooner than expected. Not a bad way to save a few bucks!
And this is precisely what I mean when I say that if you want to truly save money on your mortgage, you have to look beyond just the lowest interest rate. You need to develop a mortgage reduction plan that will not only wipe out your mortgage sooner but also save you literally tens of thousands of dollars in the process.
A good mortgage broker should not only be focused on how to get you into your mortgage (that’s the easy part!), they should be focused and committed to getting you out of your mortgage.
This guest post was written by Chris Molder, a Toronto based mortgage broker with Tridac Corporation Ltd. – The Mortgage Centre, located on the Danforth. Chris actively promotes mortgage reduction strategies and tips on his mortgage blog, Son Of A Broker.
You can also find him on Twitter.