Tips that save money on your mortgage
Shop around – and not just for the lowest rate
Of course, you should get the lowest interest rate that you can. But rates aren’t the only thing to consider when comparing options. Do your rate research. A bank’s posted rates are typically not their lowest, so before you renew or sign that mortgage application, shop around and compare rates. Your options could be your best bargaining tool when negotiating your mortgage rate.
The point is to get the best deal, which isn’t necessarily the same thing as the lowest interest rate, ask about prepayments too, the more interest rates rise, the bigger portion of your monthly mortgage payments will go toward the interest versus the principal. Pre-payment privileges can help you pay down your mortgage faster.
Ask about prepayment penalties
They offer you the flexibility to prepay a percentage of the mortgage principal before the end of the amortization period—without penalty. In some cases, lenders may offer you their ‘best rate’, at the cost of not allowing you to make pre-payments on your mortgage during the set term. So be sure to ask your lender what kind of pre-payment privileges your mortgage allows to provide you with the option of making extra payments.
Find out what the penalties are for breaking your mortgage.
Are you aware of the penalties you would incur if you had to break your mortgage?
In Canada, if you have a variable-rate mortgage with one of the big banks, you would typically have to pay 3 months of interest in order to break your mortgage. If you have a fixed rate mortgage, you’ll have to pay the greater of either 3 months of interest or something called the interest rate differential (IRD)—which is based on current mortgage rates and your remaining mortgage balance. So be sure to ask your lender whether the IRD is calculated based on their ‘discounted’ rate or their (higher) posted rate.
Here are two ways to avoid mortgage penalties:
• A portable mortgage provides you with the option to transfer your mortgage to your new home and even combine it with a new loan if necessary.
• An assumable mortgage allows you to pass your mortgage to another qualified buyer instead of having to break it.
Weigh the benefits of making a down payment of less than 20%.
If you think making a mortgage down payment of 20% or more automatically guarantees you the ‘best’ rate—think again.
While it may come as a surprise, lenders actually offer the best interest rates to high-ratio mortgage borrowers (those who need mortgage insurance because they have less than 20% down).
And there’s a very good reason for that.
Default insurance makes a high-ratio mortgage borrower low-risk against loss. This makes it cheaper for lenders to fund the mortgage loan, allowing them to pass some of that savings back to the borrower (in the form of lower rates).
Keep your credit in good standing.
The best rates go to borrowers with the best credit scores, so be sure to always pay your bills on time and never let your debt exceed more than 35% of your limit.
Accelerate your mortgage payments
No matter where you are on the pay grid or how far (or close) you are to retirement— find a good mortgage company and talk to a mortgage broker and ask them for a mortgage that fit with your needs, goals, and budget.