Author: David Cooke, AMP
(November 2005) It's no wonder that the majority of homeowners dream of one day being able to pay off their mortgage and live a life free from the shackles of interest rates, home finance, and worries about meeting the mortgage payments. Here are four tips you can follow today to substantially slash your mortgage payments, reduce your overall mortgage costs, and pay off your mortgage sooner than later.
Tip #1: Ask for a Better Mortgage Rate from Your Bank Today. Has your bank rewarded you for your large financial commitment to them, for making your regular mortgage payments, or for being a loyal long-term client? Did they contact you in the last few months to save you money by renegotiating your mortgage when rates were hovering around 50 year record lows? Phone them today and tell them that you're looking for a better mortgage deal. Did you know that 20% of bank clients sign their mortgage renewal without bothering to check rates? The banks count on these clients to pad their profits so they can give discounts to borrowers who ask for it! Recently, we had a client who was in a 5 year fixed term at 5.35%. She called her bank and was told that the early payout penalty for her $130,000 mortgage was $1,700. We ran a free rate comparison analysis and found that she would save $3,400 by switching her mortgage now. This client saved $1,700 by using this one tip and reaped the rewards from it.
Tip #2: Shop Around Using a Qualified Mortgage Broker. You can shop around yourself, however, be aware that every time you complete a new mortgage application, your credit bureau is accessed and your credit rating is decreased by a small amount. If you apply with a number of banks to compare their best offers, remember that your credit rating can take a real beating. As the banks rely on your credit rating to assess whether to offer you a mortgage, shopping around yourself can be a self-defeating exercise. We recommend you use a licensed, independent mortgage broker. With only one application and credit bureau, they can get you wholesale rates from the banks and over 40 Canadian lenders. They are best suited to find you the lowest rate and most flexible product to meet your current and long-term needs. Make sure their consulting services are free to you and they're renumerated by the mortgage lender and not you.
Tip #3: Cut Out the Bank Add-Ons. Banks are notorious for offering mortgages, income disruption, and life insurance at high rates. Truth be told, they make huge profits on these add-on products. While these products are of value, you can find them at a cheaper cost elsewhere. If you don't have a financial advisor, ask your mortgage broker to refer you to someone you can trust to offer you insurance coverage at a better rate. You can save yourself a substantial amount of unnecessary insurance premiums every year by following this tip.
Tip #4: Pay Down Your Mortgage. You've cut your mortgage rate down to size and saved on insurance costs. Now, put all those savings back into your mortgage and repay it sooner. If your budget allows it, leave your mortgage payments at the amount you paid before and you can shave years off your mortgage. Make sure your new mortgage lender offers pre-payment options without penalties such as increasing your payments by 15% annually, making lump-sum payments up to 15% of the original mortgage amount every year, and doubling up your payment amounts. By taking advantage of your pre-payment options, you can literally save thousands of dollars on your mortgage costs and pay off your mortgage faster.
About the author: David Cooke is a senior mortgage consultant with Mortgage Alliance in Calgary, Alberta. He has over 30 years of experience working in business and education; writing articles on sports, video, local history and financial matters. Visit his website at http://www.mortgagealliance.ca/davidcooke
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