Tips for Buying Real Estate
Bi-weekly and weekly payments
Most mortgage lenders have the option to allow payments to be made on a weekly or bi-weekly basis. This option may be suitable for two reasons. The first is it can save you money as you can expect to pay off your mortgage approximately 3 to 4 years sooner than amortization period. This can save money for the clients dramatically over the life of their mortgage. Another reason this option is a better choice because your employer pays you on a weekly or bi-weekly basis. This option can simplify your budget by making the payment line up with the way you get paid.
Making Extra payments
Did You Know By Paying extra money on to your mortgage payments can save you plenty of interest overtime? When we select a mortgage company, privilege payments options are something that we look at. 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.
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 Housing Corporation (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 onto 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 these financing to avoid the CMHC or GE insurance premium.
Advantages of Bigger Down Payments
As mentioned above, when you put a 25% down payment on your purchase, you can avoid the CMHC premium fees. More importantly, the larger the down payment, the lower the amount of interest you will pay over the life of your mortgage. It is important to remember not to stretch yourself to the max to increase your down payment for the purchase. By borrowing on credit cards or a line of credit at a higher interest rate.
Short Term Rates vs. Long Term Rates
The options for mortgages available can be very confusing for most mortgage shoppers. Terms for mortgages vary between variable and fixed rate, 6-month terms to 10-year terms. Taking a variable or floating rate mortgage can save you money. Typically, the shorter the term or guarantee of the rate, the lower the rate will be. This does not always happen, depending on the market place and the economy, but statistics have shown that short-term rates tend to be lower than long-term rates. The upside of variable rate is the strong potential for interest rate savings. The downside is the fact that you are accepting the interest rate risk without a guarantee. If you are considering a variable rate mortgage, you need to look at your own risk tolerance. Is your cash flow available to deal with potential increased payment? Considering projections of rates and where we see interest rates heading can be important in this decision. Make sure you talk to an expert before you make this important decision.
