Monster in your mortgage

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If you are a typical Canadian mortgage holder, you will take a fixed rate mortgage (77%)* with a 25-year amortization (90%)* and you won’t increase the amount of your payments, or:

• Pay any lump sum payments
• Increase the frequency of your payments (66%)* 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, every day, many Canadian home buyers are accepting The Monster in their mortgage without a thought to what it might mean to their overall financial health for the future.

Here’s a typical scenario.

You have found your dream home. Congratulations! Your realtor was a great negotiator and you purchased your new home for $550,000. Your mortgage is $440,000 with monthly payments of $1,932 a month over a 25-year amortization.

You were also able to negotiate a great rate (2.32%)* with your mortgage lender, so you are feeling pretty good right about now.

But wait a minute, let’s total those payments:

• That’s $579,600 worth of mortgage payments over the next 25 years.
• With your down payment of $110,000, does that mean you are paying $139,600 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. 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.

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.

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. We can discuss and implement a mortgage plan that will help reduce the overall cost of borrowing on your mortgage.

For more information please call 1-888-561-2683 or email [email protected]

*Annual State of the Residential Mortgage Market in Canada – Mortgage Professionals Canada March 2021

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.