If you are a typical Canadian mortgage holder, you will take out a fixed rate mortgage (77%) * with 25-year depreciation (90%) * and will not increase your payments, or:
- Pay any one-time payments
- Increase your payment frequency (66%) * anytime during your mortgage.
The monster in your mortgage is the interest you pay. If you think about it, this is really outrageous. However, every day, many Canadian home buyers take The Monster into their mortgages without thinking about what it might mean for their overall financial health in the future.
Here’s a typical scenario.
You have found your dream home. Congratulations! Your real estate agent was a great negotiator and you bought your new home for $ 550,000. Your mortgage is $ 440,000 with monthly payments of $ 1,932 per month for 25 years.
You were also able to negotiate a favorable rate (2.32%) * with your mortgage lender, so you feel good now.
But wait, let’s summarize these payouts:
- These are mortgage payments of $ 579,600 over the next 25 years.
- Does this mean that with your $ 110,000 down payment, you are paying $ 139,600 more than you agreed to pay for the house?
Assuming no mortgage rate increases over the next 25 years, the answer is yes. Yes!
If rates rise, the total cost of buying your home will increase significantly as you renew your mortgage at higher rates, assuming rates rise over the next five years, which is most likely.
The good news is that there is something that can be done to weaken the Monster and render him almost helpless. With a couple of small strategies available that don’t even require a lump sum, you can potentially save thousands of mortgage interest even within the first five years after getting your mortgage.
You can start by setting up your mortgage payment in accelerated payments every two weeks. Just rounding the payment to an even amount will save you and then turn on the annual mortgage increase program.
These are just three of the many strategies that are available for monitoring your mortgage, and you don’t need to be a new homeowner or wait for your mortgage to renew. They can be realized at any time during the term of your mortgage.
If you would like to know more specifically how these strategies can give you back the majority of your mortgage interest, let me know. We can negotiate and implement a mortgage plan that will help lower the total cost of borrowing a mortgage.
For more information, call 1-888-561-2683 or email. [email protected]
* Annual State of Canada’s Home Mortgage Market – Canada Mortgage Specialists, March 2021.