Mortgage Tips

Reducing the CMHC fees on your purchase

— When you require a mortgage for more than 80% of the purchase price of a property, that mortgage must be insured by Canada Mortgage and Housing (CMHC) or GE Mortgage insurance. The premium charged by these company`s decreases as the down payment increases. When you finance your property at 95%, a premium of 3.75% is added to the mortgage. By increasing the down payment to 10% of the purchase price the premium can be reduced to 2.5%. If you can put down 20%, you can avoid any additional insurance fee. Depending on your situation there are ways that you can structure this financing to avoid the CMHC or GE insurance premium.

Making Extra payments

Paying extra amounts on your mortgage can make a big interest saving over time. When you select a mortgage company, privilege payments options are something you should look for.

A 20% privilege payment will allow you to pay off up to $20,000 per year on a $100 000 mortgage. It is important that the privilege payment also be flexible to allow you to pay smaller payments on the mortgage and as often as you wish. An extra $1000 periodically paid on a mortgage can help you become mortgage free faster.

Bi-weekly and weekly payments

Most mortgages have the option to allow payments to be made on a weekly or bi-weekly basis. This option may be desirable for two reasons.

  1. The first is it can save you money as you can expect to pay off your mortgage about 4 years sooner. This can save you dramatically over the life of your mortgage.
  2. The other reason why these options are so popular is that if your employer pays you on a weekly or bi-weekly basis, you can simplify your budgeting by making the payment line up with the way you paid.

Variable Rate Mortgage

Take advantage of a variable rate mortgage. They offer the lowest rate available, and are simply the most effective mortgage product on the market!

Here’s how it works…

Example:

Here is a sample of a variable rate mortgage. This one is based on a 5 year term, however, only the first 3 years are closed. Years 4 and 5 are open with absolutely no pre-payment penalty. Sometimes you will find an introduction rate where the first 3 months are set at a lower rate. Also, after the initial rate, your may be able to negotiate payments that are based on PRIME less an amount for the remainder of the term.

What if Prime Rate goes up?

Most variable mortgages will any time, without penalty, allow you to convert into a closed mortgage – the length of the remaining term is subject to terms of your mortgage. Read your document carefully to ensure you understand this feature.

Pre-Payment Options

Many mortgages allow you to Pre-pay up to 15% and sometimes more of your mortgage, without penalty, on an annual basis. You may also have the ability to DOUBLE your monthly mortgage payment on any payment date. Again read your mortgage document to make sure as bank’s terms may vary.

For further information check out Canada Mortgage and Housing for a more in depth considerations.