The monster in your mortgage
So you have found your dream home. Congratulations! Your REALTOR® was a great negotiator and you purchased your new home for $475,000. Your mortgage is $350,000 with monthly payments of $1750.00 per month over a 25 year amortization. You were also able to negotiate a great rate (3.5%)* with your mortgage lender so you are feeling pretty good right about now.
But wait a minute, let’s total those payments . . . that’s $525,000 worth of mortgage payments over the next 25 years! With your down payment of $125,000 …. Does that mean you are paying $175,000 more than you agreed to pay for the house? Assuming that there is no increase in mortgage rates over the next 25 years, the answer is YES! If rates increase the overall cost of buying your home will increase significantly as you renew your mortgage at higher rates assuming that rates will increase within the next five years which is most likely.
If you are a typical Canadian mortgage holder, you will take a fixed rate mortgage (82%)* with a 25 year amortization (84%)* and you won’t increase the amount of your payments (84%)* or pay any lump sum payments (83%)* or increase the frequency of your payments (92%)* at any time during your mortgage.
‘The Monster’ in your mortgage is the interest you are paying. It’s really quite outrageous when you think about it. Yet everyday many Canadian homebuyers are accepting ‘The Monster’ in their mortgage without a thought to what it might mean to their overall financial health for the future.
The good news is, something can be done to weaken ‘The Monster’ and make it nearly helpless. With a couple of small affordable strategies that do not even require lump sum payments you could potentially save thousands in mortgage interest even within the first five years of your mortgage.
You can start by setting your mortgage repayment at accelerated bi-weekly payments. Just rounding up your payment to an even amount will save you and then set yourself on a program to increase your mortgage payments annually. These are only three of the many strategies that are available to get your mortgage under control and you don’t have to be a new homeowner or wait until your mortgage is up for renewal. They can be implemented at any time during the life of your mortgage.
It’s up to you to get the ball rolling so if you would like to know more specifically how these strategies can put a large amount of the interest on your mortgage back into your pocket, let me know.
For more information please call 250-826-3543 or email [email protected]
*Annual State of the Residential Mortgage Market in Canada – CAAMP November 2013
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