Aside from paying a regular monthly mortgage payment there are other choices you’ll be presented with when approved for a mortgage. This article will explain the differences and benefits of changing your payment schedule.

The goal is to pay down your mortgage as quickly as possible and save on interest. The longer it takes to pay down the more interest you’ll end up paying in the end. You’ll soon discover how choosing an accelerated payment is the best way to go.

Typical mortgage re-payment options:

Monthly: Your typical payment. With this option your payment will be the least amount and the mortgage will be re-paid the slowest. This may be more comfortable for some people as its only one payment a month to think about and plan for.

Bi-Weekly: Your 12 Monthly payments divided by 26. You would pay a payment every 2 weeks for a total of 26 payments per year.

Accelerated Bi-weekly: Your monthly payment divided by 2. This way you end up paying 2 extra payments a year the same as paying 13 monthly payments per annum.

Semi-Monthly: Making payments twice a month for a total of 24 payments a year. This will not help to pay your mortgage off any sooner than regular monthly payments.

Weekly: Taking your monthly payments for the year and dividing by 52 weeks. This will not pay down your mortgage any sooner.

Accelerated Weekly: Taking your monthly payment and dividing it by 4. You’ll end up paying the equivalent of 13 monthly payments in one year.

Here are some examples using a $250,000 mortgage at 2.44% over 5 year term, compounding semi-annually with a 25 year amortization.

You can see how choosing the accelerated option pays your balance down a lot faster than regular payments.

If you would like more information on how you can save on your mortgage payments, contact a mortgage professional at Dominion Lending Centres.

Courtesy of Danielle Spitters, AMP – DLC Valley Financial Specialists

There are great advantages to having business for self. There are many extremely successful business owners that live great lifestyles but don’t have to pay for medical, all because they have great tax write-offs that bring their income down to a low tax bracket. The other side of this is that these great benefits actually make these same business owners work hard to qualify for a mortgage, all because their income is significantly reduced on paper. These business owners know that there is advanced planning involved in being able to qualify for conventional financing.

According to Statistics Canada, in 2015 there were about 2.7 million people self-employed in Canada which is about 14% of the total population of the country. These statistics reflect people that are continuing on in maintaining a significant lifestyle financed by self-employment and being able to be counted as such. In other words, being self-employed is a viable way of making income. It just doesn’t fit very well in the conventional lending “box”.

In order to fit in the conventional lending “box”, there is a measure that lenders require that each mortgagee(s) (the person(s) applying for the mortgage) must meet. Some of the documents that self-employed have to provide for the lender are two most recent years of tax returns that don’t always accurately reflect the actual take-home that a self-employed person has. Tax deductions related to business often reflect meals to rental space to credit card interest, etc. The result is that the income the self-employed business owner shows on their tax return is a significantly lower figure than what they actually take home. However, the “box” requires that tax returns show the required income to justify the mortgage.

So, how does one show enough income when they are self-employed? The following points are suggestions on strategies on how to plan ahead and be prepared when you, as someone who is self-employed, are ready to move forward in arranging a mortgage for property purchase.

• The easiest way to plan is to write off fewer expenses in the two years leading up to the property purchase. Yes, this means you will pay more personal taxes. However, your income will be higher which will easily qualify you for the mortgage amount that you are looking for.
• Set your finances up through a certified accountant. Many lenders want to see self-employed income submitted through a professional rather than doing it yourself. The truth is that the time that you spend doing your own taxes will not be as efficient both financially and time wise as a professional. A certified accountant knows what to look for and has enough experience to understand the tax implications. Make sure you discuss with them what your goals are so that they can set up your taxes appropriately.
• Choose your timing carefully. If you are leaving on an extended holiday or sabbatical within the two years previous to purchasing, your two-year average income is not going to be great. Take all the time off that you want AFTER your purchase. Plan your timeline with INCOME in mind.
• Ask your Mortgage Broker about STATED INCOME. There are options with some lenders to State your income. This is based on you being in the same profession for at least two years previous to being self-employed. The lender looks at the industry and researches the mean income of someone in that same profession within a reasonable amount of time. STATED INCOME is a complicated approach to showing income. However, your Dominion Lending Centres Mortgage Professional will know what questions to ask and how to negotiate this kind of proof of income. Documents such as bank statements, showing consistent deposits, will be requested by the lender.
• BANKRUPTCY. Although some business people see bankruptcy as a viable option to get out of a bad deal and regroup, lenders generally do not like bankruptcy. Having said that, some lenders will overlook this if there has been consistent and excellent credit since the time of bankruptcy and you have been fully discharged from the bankruptcy for a specific time period. Make sure you keep ALL Bankruptcy papers easily available along with your discharge papers.
• Be prepared for higher interest rates. Lenders offer discounted rates to those that fit in the “box”. Those that are not conventional are seen as a risk and, therefore, are applied to a higher interest rate. There also could be lender fees attached to the mortgage.
• Offer a larger down payment. Lenders are somewhat handcuffed to the insurer when there is less than 20% down payment on a property purchase. But if you offer more than 20% down payment, depending on the lender, their flexibility increases and it is up to the lender or even the branch if they want to take you on as a client.
• As a last resort, you can do private financing. Even though it is an expensive option, it could result in the mortgage you are looking for. Rates are higher and there will be lender/brokerage fees. However, you could be in a private mortgage for 12 months or even less, whereby giving yourself time to improve your credit (if need be) or topping off a two year self-employed period to set yourself up to show STATED INCOME to the lender. The whole point of private financing is to use it as a short term solution for a long term plan.

Being self-employed does not mean that you have to show enough income on your T1 General in order to qualify for a mortgage. There are many factors involved in showing income when you are self-employed. And every lender has different guidelines as to how they view self-employment. If you are self-employed, plan accordingly and make sure you are well set up to show that the lender that you are a desirable candidate for a mortgage.

Courtesy of Geoff Lee, AMP – DLC GLM Mortgage Group

With plenty of activity in the real estate market and more new building slated over the next few years, here is my list of “Things to Consider When Buying in a New Development”.

Representation

Some buyers attend the display suite and consider a purchase directly with the developer sales person or the developers Realtor. Regardless of which kind of property you choose to purchase – new or existing – I always suggest you have a Realtor represent you. I have seen contracts where the buyer has not reviewed the details properly and they are not fully informed before they sign. The developer’s agent or Realtor is acting on behalf of their client – the seller. You should also have your own representation.

Interest Rates

If you are buying a home more than a year or more before completion, you may not know your actual fixed costs for the mortgage until well after you have signed your purchase agreement and paid your deposits. Depending on the lender and timeline, your costs may be unclear for several months. Even if you have a rate hold – things can change along the way with financing rules or the market. I always keep in touch with my clients and within a few months of completion we revisit the overall plan and make some decisions. Your down payment may need to change, the property value may shift or you may have experienced a life changing event (please don’t quit your job). Remember: Keep your mortgage broker in the loop.

Goods and Services Tax (GST)

When you buy a newly built home pay special attention to the contract price. In Canada Goods and Services Tax (GST) of 5% is payable on the purchase of a new home. In many cases the purchase price is set excluding GST so you need to add that tax amount to determine the total purchase price. If the home price is under $450,000 and will be your primary residence, you are eligible to receive a rebate equivalent to 36% of the GST. The rebate will be deducted and the new purchase price will be set Net of GST. There are many online calculators to determine this number and it should also be clear on the purchase agreement. Your mortgage broker will also calculate to confirm. For example a $400,000 purchase price excluding GST will result in an actual purchase price of $416,850. ($20,000 in GST minus the rebate of $3150). A purchase price of $500,000 excluding GST will result in an actual purchase price of $525,000 ($25,000 GST and no rebate).

Allowances and Discounts

In some cases you will have the option to upgrade the home with higher quality items such as flooring or a basement. These items can be included in the purchase price with no additional cost. The agreement will clearly outline the details and no cost will be associated for these items. However, if the contract states there was an allowance as a credit with a cost associated this will be considered a buyer credit and the amount on the contract will be deducted from the purchase price by the financial institution. There will be no financing on these items and the buyer will be responsible for the additional cost. This is common when buyers want to include furnishings such as in a display home. This can be a surprise to buyers as they are not fully clear on the purchase price and what is really included. It is important to review the contract closely with your own buying agent (Realtor) and if any financing questions arise – with your mortgage broker – to ensure you know your options.

Property Taxes

When a developer applies to the local city for a building permit the city will set the municipal taxes for the entire development. Once the developer is near completion and applies to the city for occupancy permits or submits the strata plan (for condo developments) it can still take some time for the city to determine the property tax for each home or condo unit. More and more lenders are using a percentage of the purchase price to determine the property taxes at the time of application unless confirmation of taxes can be provided by the city. In some cases this can be .5%-1.75% of the purchase price which can make a difference to qualify for financing. Your Dominion Lending Centres mortgage broker can review options with you to select the best overall financing solution for your purchase and avoid delays in securing an approval.

Strata fees – start low and grow

Since the strata plan on a new condo development isn’t in place when you make an offer to purchase a new home the strata fees on the purchase agreement will be set low. I recently had a client purchase a condo for $750K and the strata fees were under $170 per month. My clients understood this strata fee will increase to a higher level once the operating budget is set by the strata council and they should set their personal budget accordingly to expect an increase. For more details on the process and to understand the responsibilities of the developer, the strata corporation and the new buyer, click here.

Assignments

When a developer sells their houses or condo units well in advance of completion some original buyers may decide not to complete on the purchase and choose to assign the property to a new buyer. In this case there may be a lower or higher new purchase price. If there is a lower price the GST on the original price will apply. If the price is higher the GST on the original purchase price will apply. The property purchase transfer tax will apply to the new purchase price. The final property purchase transfer tax will be determined depending on the details of the transfer and the value of the property within limits for exemption is typically set by provincial government. For financing purposes, not all lenders will consider an assignment as the new purchase contract is between the original buyer and the new buyer and not with the developer. Some lenders will only consider the original price and the new buyer will have to pay the difference between the two amounts as the down payment to complete the purchase. Lenders who consider the new price will require a full appraisal to confirm the current value of the property. They will also need the original contract in addition to the new purchase contract and want to know details on the relationship between the seller and the buyer. There are many things to consider when you purchase a new home. Always consult your professional advisers, including your Realtor, Mortgage Broker, Financial Planner, Accountant and Lawyer to ensure the purchase helps to meet your lifestyle and financial goals.

Courtesy of Pauline Tonkin, AMP – DLC Innovative Mortgage Solutions 

In celebration of the 30th Anniversary, HomEquity Bank has announced a new face for Canadian reverse mortgages. HomEquity Bank will collaborate with four-time Canadian and World figure skating champion Kurt Browning for a new series of commercials. Kurt is a Canadian figure skating legend and icon, most recognized by his upbeat and colourful personality on and off the ice.

With this exciting new partnership with HomEquity Bank, Kurt enthusiastically wanted to take an active part in the creation of the commercials including the creative direction of his on-ice techniques as well as the script and choice of music. Kurt even suggested bringing his friend “The King of Blades”, Donald Jackson to collaborate on one of the ads. At age 76, Don is a four-time Canadian figure skating champion and a bronze medalist at the 1960 Winter Olympics in Squaw Valley, California.

Kurt has been a great addition to the HomEquity Bank team and even surprised us when he choreographed a routine with Donald Jackson at a recent figure skating show in Toronto and Hamilton.

This new and exciting chapter at HomEquity Bank will bring forth many new marketing assets including videos and commercials, marketing materials, and even a new product guide. As the new face of HomEquity Bank, Kurt will add a level of excitement to our brand and we can’t wait to let you in on the many surprises still to come.

Kurt is excited to be partnering with HomEquity Bank to spread the word about Reverse Mortgages, as they have helped thousands of older Canadian homeowners live the retirement they have always dreamed about. If you are a Canadian, 55 years of age of older and a homeowner, you can qualify for a CHIP Reverse Mortgage from HomEquity Bank. A CHIP Reverse Mortgage is a way for homeowners (55 or older) to turn up to 55% of the equity in their home into tax-free cash. It requires no regular monthly payments for the principal or interest amounts for as long as either the homeowner or his/her spouse is living in the home.

Join us on our Twitter, Facebook and LinkedIn for daily updates on all of the exciting events happening at HomEquity Bank including all of our latest news with our partnership with Kurt Browning. Please also help us spread the word by liking and sharing our posts to your network, and following #KurtNow for all of our spokesperson posts.

This is a wonderful time to be a part of the HomEquity Bank family, and we thank you for continuing to be such a great part of that family.

To learn more, contact your Dominion Lending Centres mortgage professional.

As a business owner, you understand the power of financial leverage. It is especially important for companies that require significant investment in equipment, raw materials and inventory before they can begin generating revenue. A key to success is to spend as little out of pocket as possible on these necessities in order to preserve cash flow for operations. When used properly, financial leverage helps companies grow faster.

Two particular kinds of leverage can be especially beneficial: Leasing and Factoring. When used together, leasing and factoring provide a powerful one-two commercial financing punch.

All businesses are built on cash flow and leverage. It does not make sense to use all your cash to pay upfront for something that’s going to generate income at a future date. Also, if you spend all your cash on equipment, there’s nothing left for materials, inventory, payroll, overhead, etc. Leasing helps preserve cash and manage it more effectively.

Like leasing, factoring can be an important cash flow management tool. In the same way that it’s usually not smart to lay out cash to buy equipment, it often doesn’t make sense to carry accounts receivable, especially for slow-paying customers that may not pay for 60 to 90 days or more. By factoring your AR, you can accelerate cash flow in order to take on even more business.

The bottom line is it can be much easier to manage your business financially by using leasing and factoring together. As a business owner, you can now focus on sales and margin. The cost to lease and operate equipment is fixed each month as is the cost to factor, so it’s easier to set prices that ensure the level of profitability desired. Meanwhile, you’ve created a scenario where you can keep growing as fast as you can sell products. Need a new machine? No problem, Lease it. Need to accelerate cash flow? No problem, factor.

In today’s fast-paced business environment, where conditions change on a dime and opportunities often arise with little or no warning, companies must be nimble and flexible. Using factoring and leasing together can provide a powerful one-two commercial punch needed to succeed. By using leasing and factoring together, you can turn a profitable opportunity into reality.

For information on how you can grow your business through leasing and factoring, please contact your locate Dominion Lending Centres office.

Courtesy of Jennifer Okkerse, DLC Director of Operations, Leasing Division 

This is the great debate around many household dinner tables nowadays: improve or move? With all the attention the real estate market is getting these days in the local and national media, I’m surprised everybody isn’t cashing in, selling and moving. Everybody who owns real estate is holding their very own lottery ticket, each with a slightly different purse.

Sell your home for lots of cash and buy new…what could be easier! There is definitely something to be said about buying new and ‘shiny’ with a warranty. It’s glamorous, it’s easy and it makes for great Facebook posts.

Heck, on the flipside, posting before-and-after pictures of a renovation could be more impactful. You could even use the platform as a confirmation tool with picking wall colors, countertop material or even layout.

You don’t have to sell to win the lottery. The equity in your home could also be viewed as the lottery proceeds. In my opinion is there isn’t enough thought put into staying in the current home and improving the living space. Bear in mind, there are valid reasons why you have lived there so long: an established network of friends, close to school, convenience for day-to-day amenities, access to work, beautiful big back yard (new homes have small yards nowadays), family activities, kids’ sporting programs…the reasons are endless to stay…Bu-u-u-ut one could say there are many reasons for moving too.

My only intention for this blog post is to create questions and have you think, is improving or moving the best option? Don’t always jump at the dangling carrot; there could be other options.

One could argue that deciding to sell and move is the easier of the two. All that you need to do is to call your trusted Realtor and suddenly within 4 to 9 days your home is sold. But is that the more financially sound choice?

Here are the costs to consider when selling your home.

* Approx Realtor fees: 3.50% on the 1st $100K, 1.15% on the balance
* Potential mortgage penalty: Based on the balance, or it can be ported
* Lawyer fees: $2,000 (sell and buy)
* Property repairs: TBD; major repairs or just minor touch ups?
* Movers: Professional movers $2,500 or friends/family
* Inspection: $400-500 buying new property
* Appraisal: $300 buying new property with 20% down or more
* Property Transfer Tax: 1% on the first $200K & 2% on the remaining bal. (purchase)
* Mortgage payment: Difference between mortgage payments (old and new) is a cost
* GST: Are you buying a brand new home?

The other side to the equation is staying in your current home and making it better; more livable, shiny, new, fresh…Facebook worthy!

Here are the costs to consider when improving or renovating your home. This scenario makes the assumption that you will be accessing your equity to improve your home.

* Appraisal: $300; to determine market value for equity leveraging
* Mortgage payment: What is the overall increase per month with the additional funds?
* Permits/Plans: Are renos structure or surface? New floors, new paint etc…
* Product to be used: Cost to purchase new flooring, paint etc…
* Demolition: Cost of disposing of the materials correctly.
* Installation: Can you do it or do you need to hire a contractor?

Both scenarios create disruptions in life. Which one makes more sense for you and your family? Moving can have long-term effects, whereas improving is a short-term impact with living in a construction zone.

Either of the options is a great journey. Don’t focus on the destination. Make sure you consult with your Dominion Lending Centres Mortgage Broker first to consider all the costs and qualifying ramifications. The lending landscape is constantly changing; don’t assume you will qualify for a mortgage today because you qualified for one 5, 10, 15, 20…years ago.

One cost that can be overlooked by home buyers is mortgage default insurance.

So, what exactly is mortgage default insurance and why do you need it?

If you’re buying an owner-occupied home with less than 20% down payment, you are required to purchase mortgage default insurance in order to arrange your financing.  When buying a rental property, some lenders require you to purchase this insurance if you put down less than 35% towards your purchase.

As real estate values in Metro Vancouver continue to soar, many home buyers, especially first time home buyers, often have less than 20% of the purchase price available as a down payment.  The average price of a new home is now well above $500,000 meaning a 20% down payment can easily exceed $100,000.  This is a lot of money for most people and it’s understandable why many fall short of this 20% down payment.

Conventional vs. High-Ratio Mortgage

Borrowers who have a payment of 20% qualify for conventional mortgage financing.  For your lender this means the property has sufficient equity to protect the lender from any shortfall should you, the borrower, default on your mortgage.  Having a higher down payment also means you have more “skin in the game”, making it less likely you’d default and walk away.

A high-ratio mortgage means the borrower has anywhere from 5% – 19.99% towards their down payment.  Financing can still be obtained but in this case you will be required to purchase mortgage default insurance.  The higher loan-to-value (LTV) percentage of a high-ratio mortgage means you have less equity at stake and thus a higher potential of default.

The lender wants to protect their investment and they do this through mortgage default insurance.  This is an additional cost to the borrower but it also makes it possible for those with limited savings, particularly first time homebuyers, to get into the market sooner.

Mortgage Default Insurance Providers

There are three major insurers in Canada.  The Canadian Mortgage & Housing Corporation (CMHC) is a Crown Corporation and the largest provider of mortgage default insurance in Canada.Genworth Canada and Canada Guaranty also provide this type of insurance to the lenders.

Your lender or financial institution will arrange and pay for your insurance, but this cost is typically passed on to the borrower and is incorporated directly into your mortgage payments.   Insurance premiums are tiered and based on the amount borrowed and the size of your down payment.

To see a detailed list of premiums visit CMHC’s site to see how much it costs.

Thanks for reading and feel free to contact Dominion Lending Centres with any questions.

Courtesy of Brent Shepheard, AMP – DLC Canadian Mortgage Evolution West 

So, you’ve worked hard to save every penny and have managed to finally afford the down payment necessary on a home. You have searched high and low, only to find the house of your dreams at a price you can afford. Though your credit rating is good and you have a stable job, there are some key things to avoid while waiting for your mortgage to be approved.

Here are 4 things you must absolutely avoid to ensure that you get that dream house:

1. Buying a Vehicle

Your current car may have finally given up or a great deal has arisen, but before making any decision on a new vehicle, check with your mortgage professional. You need to ensure that the numbers you provided on your mortgage application hold true in order to be approved!

2. Changing your Credit or Payment Routine

Before putting extra money towards a debt or changing your payment schedule on any liability, you must check with your mortgage professional. Again, anything that doesn’t align to the information you provided on your mortgage application could put your approval in jeopardy.

3. Changing Jobs

There are many opportunities and challenges that come with any job, but before deciding to drastically change your employment situation, keep the following in mind:

• If you are accepting a new position you need to ask if you will be given a probation period. Any mortgage lender will not accept probationary employment on a mortgage application.

• If your income situation is changing, such as receiving bonuses, overtime, or commissions, you could be putting your approval in limbo. This is risky because these job perks require a 2 year history before a lender will accept them as income.
• If you cannot stand your job any longer and are considering leaving the position, you need to talk to your mortgage professional immediately. The information you provide on your application must check out, especially when it comes to your employment. Most likely, you will need to wait to leave your job until after the mortgage has been approved and you’ve taken possession of the home or you’ll risk losing your dream house.
• If you are considered a contractor or self-employed person, you must provide a 2 year history in order to be approved for a mortgage. If you are considering going into this line of work you’ll need to wait until after you take possession.

4. Making Payments Late

While waiting for your mortgage to be approved, make sure you make every payment early or on time! If your credit experiences even a slight drop because of a late payment or maxed out credit card, a lender will not approve your mortgage and will cancel the application.

Getting approved for a mortgage doesn’t have to be difficult! As long as you do your due diligence and know all the information, you will be on the path to a happy home-buying process. Contact Dominion Lending Centres to inquire about mortgage approvals. We’re always happy to lend a helping hand!

Courtesy of Alim Charania, AMP – DLC Regional Mortgage Group 

In December, Mortgage Professionals Canada released its annual state of the housing market report and found that in 2015, 36% of homeowners took actions to reduce their mortgage debt.

While many homeowners think in terms of lump-sum payments, which are a great option, there are other ways to save money and pay down that debt including the following:

* Refinancing for a lower interest rate

* Renegotiating for a lower interest rate

* Switching to accelerated bi-weekly payments

* Increasing amount of regular payments

* Lump-sum payments

According to the report about 950,000 mortgage holders voluntarily increased their regular payments during the past year. The average amount of increase was about $340 per month, for a total of almost $4 billion per year. In addition, voluntary increases that were made in prior years continue to contribute to accelerated repayment of mortgages. Increasing your payment by just $20 a month can have a positive impact simply because the extra money is applied directly against the mortgage principal. This decreases the amount of interest you will pay over the life of the loan

Also in 2015, seven per cent of mortgage holders (about 400,000) increased the frequency of their payments. Just over one million made lump sum payments during the past year. The average amount was about $15,300, for combined repayment estimated at $15.5 billion.

Other highlights from the report:

* About 660,000 households lived in homes that they purchased during the past year (newly-constructed or resale). The average price is $408,800, for a total value of $270 billion.

* Among these recent homebuyers, there had been an estimated total of $35 billion in mortgages on existing homes that they sold (which would have been discharged or transferred at the time). The combination of $188 billion in financing on purchased homes minus $35 billion on prior dwellings means that home purchases in 2015 have resulted in a net credit growth of $153 billion.

* About 100,000 Canadian homeowners fully repaid their mortgages during 2015 (up to the date of the fall survey). A further 40,000 expect to fully repay their mortgage before the end of the year. In combination, about 140,000 mortgages will have been fully repaid during the year.

It’s good to see that these stats show that Canadians are paying attention to the great information that is available to them on mortgages. If you need more ideas on how to save on your mortgage, contact the professionals at Dominion Lending Centres.

Courtesy of Len Lane, AMP – DLC Brokers for Life 

Most of us that have a mortgage would like nothing more than to have our mortgage paid off. Being mortgage free is an achievable goal. But it is important to think through the process so that you utilize your money the best way possible. You may be surprised what conclusions you draw if you thoroughly think through your options.

Think about this!

1. Right now interest rates are the lowest they’ve ever been. Paying off your mortgage may not give you the same return as you’d get by investing in a higher interest investment return. Make sure you’ve talked with your financial advisor on money investment opportunities. It may be more beneficial to invest in other opportunities.

2. On the same note, there may be an opportunity to match retirement contributions through your employment. There are some fantastic opportunities with RRSPs which may give you a higher return for your money rather than paying off your mortgage.

3. Taking advantage of prepayment privileges with bonus money such as bonuses, inheritance, may not be as fruitful in returns as paying into higher interest return investments. Make sure you ask your lender how much it will cost to pay off your mortgage early. And make sure your ask your lender how much per year can be paid off. Some lenders say 15% and some lenders say 20%. Some lenders say 0%! Make sure you find out their guidelines.

Having said all that, there are great ways to pay your mortgage off faster. But before the suggestions, lets define some of the terms you need to know in order to understand your mortgage fully.

Definitions

Amortization – paying off mortgage debt with a fixed repayment schedule in regular installment over a period of time. Most amortization periods are 25 or 30 years long.

Term – contracted period of time for a mortgage. Terms are usually 5 years long but can be any amount of time that you contract with your lender. 6 month terms, 1 year terms, 2 year terms, 3 year terms, 4 year terms, etc are all available through your lender. However, interest rates will vary with different term lengths.

Principle – the actual amount of the mortgage loan.

Interest – the interest incurred on the loan

Principle plus Interest (PI) – This is typically the payment that is taken monthly from your account. The actual principle amount and interest amount varies from payment to payment. However, the payment that is coming from your account will remain consistent from month to month.

If paying off the mortgage is your goal, consider the following:

1. Increase your scheduled payments to bi-weekly or even weekly payments. You will not pay as much interest by increasing your payment schedule. Note that your payment amount will NOT increase. Your payments are merely applied sooner which does not allow interest to compound as quickly, thereby lessening the amount of interest you are paying and, therefore, decreasing the time to pay off your mortgage. Take a look at http://itools-ioutils.fcac-acfc.gc.ca/MC-CH/MortgageCalculator.aspx?lang=eng and consider the tax savings.

2. Amortize your loan over a lesser amount of time. When your term renewal time comes up, you can negotiate with your lender a shorter amortization period. There is less flexibility with this option as your monthly payments will be higher. With this option, it is important to keep your eyes on the goal so you don’t get discouraged with the bigger payments. Your mortgage will absolutely be paid off faster.

3. Increase your scheduled payment by $25 or $50 per payment. Surprisingly, you might not even feel it as much as you might think. We are creatures of habit and once changes are implemented and become the norm, the higher payments are just expected and our mortgage pays down faster and faster.

4. Take advantage of prepayment privilege. Whether your lender allows 10%, 15%, or 20%, make it a goal to put something extra toward your mortgage every year. Make sure you ask your lender how to make a higher payment as they will have guidelines to follow.

5. If you receive a tax return, use it toward your mortgage. Making an extra payment every years will literally take years off the amortized time of your mortgage.

6. Any bonuses this year? Apply it toward your mortgage. Even a few hundred dollars down on your principal can make a significant difference in the amount of time to pay off your mortgage.

7. If you are a double income family, consider dedicating one of your incomes toward mortgage payments.

8. Purchase BELOW your means. That way, the extra the would be in a higher mortgage amount can be put into good use by increasing your mortgage payment amount by the difference.

The sense in paying off your mortgage faster…

1. Making a plan – a well structured plan will stop you from overspending. Putting together a plan forces you to think through your goals. Budgets cause us to narrow down our goals and stick with them. If a new adventure or unnecessary expenditure comes up, you can align it with your goals and consider if it fits. If it doesn’t, throw it. If it does, then it is likely time to sit down and revamp or consider your goals. Having a plan chases away thoughtless impulses and keeps you on the right track.

2. Peace of mind in owning your own home. When you sign your mortgage papers, the lender discloses to you that you will pay more than twice the purchase price of your home. Your amortization schedule will clearly show the amount of interest and the amount of principle that you pay with every payment. You can google amortization schedule and several calculators will come up. Just punch in your numbers and you will see how much interest versus principle that you actually pay.

3. Paying off your mortgage provides a reliable return on your investment. Typically, and most likely, your property purchase will result in an increase in value as the years go on. It has been argued that using the “extra” money that comes in toward investments will result in a higher return. However, most of us don’t have a plan in place and so that extra money gets quickly spent. A sure investment is increasing your monthly payments (even by a few dollars) resulting in a mortgage that is more quickly paid off.

4. Saving up for the 20% is much more economical than going into a property purchase too early (using 5%) down. You will literally save tens of thousands by NOT having to purchase the mortgage insurance that is not for your benefit but for the banks! On a $400,000 purchase price with 5% down, you will pay a 3.6% premium which amounts to just over $12,000.00 dollars (added to your mortgage).

5. When it comes time to refinance, make sure you know your options. Don’t assume that your lender has your best in mind and will give you the lowest rate available. Make sure you have a Dominion Lending Centres Mortgage Specialist look at your situation to see if there is a better option out there for you. This service is free so take advantage of it!

Courtesy of Geoff Lee, AMP – GLM Mortgage Group