The battle for today’s mortgage dollar means financial institutions are offering more attractive mortgage packages to the consumer as well as a number of unusual incentives. But with sweepstakes, cash bonuses, smart speakers, and cash back offers, how do you decide what the best mortgage is for you?
One important point to keep in mind is that incentives are only worthwhile if the deal pays off in the interest rate, term and ability to pay off the principal as quickly as possible. The key to eliminating a mortgage is to increase the amount of cash actually going to the payment of the principal.
For example, an incentive offered by one bank is an $800 rebate when taking out a mortgage. But on a $100,000 mortgage, saving 1/4 per cent over five years equals a value of $1,000, so if your present mortgage rate is even 1/4 per cent lower than that offered by the bank with a “deal”, you are saving money over the long-term.
You can also save thousands by shortening the amortization term from 25 years to 15 years. This would save $80,000 in interest over the life of the mortgage a $100,000 mortgage.
A plunge in mortgage rates offers a number of advantages. When you renew your mortgage at a lower interest rate, you should try to continue to make the same payments. The extra dollars that would have gone towards a higher interest rate will now go directly towards the principal, or to a shorter amortization.
When you invest extra dollars in reducing your mortgage, payback in the form of saved interest is risk-free and non-taxable. This investment also has the potential to act as an emergency fund; the extra money paid on your principal puts you ahead of your mortgage amortization schedule, and some lenders may even consider letting borrowers reduce or skip payments if a cash crunch hits.
When making your mortgage choices flexibility is a major consideration. You want your mortgage to be flexible enough to allow you to make annual pre-payments or increases which suit your financial circumstances for that year. Remember, though, that once you are committed to a faster payment schedule, if you’re unable to meet it you can find yourself in trouble.
When considering mortgage rates and options watch for the hidden costs if you switch mortgage lenders. Costs such as legal fees, appraisal fees, discharge and set up fees can eliminate potential savings.
Most lenders have very similar rates but the choice of payment frequency, prepayment privileges, the range of terms, early renewal plans and portability should you move, can make a real difference.
Another point to keep in mind is that if you have all your accounts in one location—your car loan, savings account and registered retirement plans—you can use that as a negotiating point.
If you’d like to talk to a mortgage advisor, call us at 1-877-WESTOBA or book an appointment below.
