Introduction

Securing a mortgage is a significant financial commitment, but saving on your mortgage doesn’t have to be a complex process. By understanding key strategies, you can reduce costs, pay off your mortgage faster, and build equity more efficiently. This guide will walk you through actionable tips and expert advice on ways to save on your mortgage and achieve your financial goals sooner.

1. Choose the Right Mortgage Term

Understanding Mortgage Terms

Selecting the appropriate mortgage term is critical to saving money over the life of your loan. In Canada, typical mortgage terms range from 1 to 10 years, with 5 years being the most common. A shorter term often means a lower interest rate, but it also comes with higher payments. Conversely, a longer term may provide lower monthly payments but usually at a higher interest rate.

Short vs. Long-Term Mortgages

• Short-Term Mortgages: Offer lower interest rates, reducing the total interest paid over time. However, they require higher monthly payments, which may strain your budget.
• Long-Term Mortgages: Provide lower monthly payments but usually at a higher interest rate, resulting in more interest paid over the life of the loan.

Strategic Tip: If you can afford higher monthly payments, opt for a shorter term to minimize your interest payments. Always consider your long-term financial plans when selecting a mortgage term.

2. Explore Fixed vs. Variable Rate Mortgages

Fixed-Rate Mortgages

Fixed-rate mortgages offer the security of consistent interest rates and payments throughout the term. This predictability is valuable in a fluctuating market, allowing you to budget more effectively. However, fixed rates are typically higher than initial variable rates.

Variable-Rate Mortgages

Variable-rate mortgages fluctuate with the prime rate, potentially offering lower interest rates in the short term. However, they come with the risk of rate increases, which can lead to higher payments over time.

Strategic Tip: Consider a variable-rate mortgage if you anticipate stable or decreasing interest rates, and you can handle potential payment increases. Alternatively, a fixed-rate mortgage may be better if you prefer stability and predictability.

3. Increase Your Down Payment

Benefits of a Larger Down Payment

A larger down payment reduces the amount you need to borrow, leading to lower monthly payments and less interest paid over the life of the mortgage. Additionally, putting down 20% or more can help you avoid costly mortgage default insurance.

Avoiding Mortgage Default Insurance

In Canada, mortgage default insurance is mandatory if your down payment is less than 20%. This insurance protects the lender but adds to your overall cost. By increasing your down payment to 20% or more, you can avoid this additional expense.

Strategic Tip: Aim to save at least 20% of your home’s purchase price for your down payment to avoid extra costs and reduce your mortgage balance.

4. Take Advantage of Prepayment Options

What Are Prepayment Options?

Many Canadian mortgages offer prepayment options, allowing you to pay more than your scheduled payment or make lump sum payments. These payments go directly toward your principal, reducing your loan balance faster and lowering the amount of interest you pay over time.

How to Maximize Prepayments

• Double-Up Payments: Some lenders allow you to double your regular payments without penalty.
• Annual Lump Sum Payments: You may be able to pay up to 15-20% of your original mortgage amount as a lump sum annually.

Strategic Tip: Use any extra funds, such as tax refunds or bonuses, to make lump sum payments. This will reduce your principal balance and help you save on interest.

5. Refinance Your Mortgage for Better Terms

When to Refinance

Refinancing your mortgage involves paying off your existing loan and replacing it with a new one, typically at a lower interest rate. It’s a smart move when interest rates drop or your financial situation improves, allowing you to secure better terms.

Benefits of Refinancing

• Lower Interest Rates: Reduce your monthly payments and overall interest costs.
• Switch from Variable to Fixed Rate: Lock in a low rate for the remaining term of your mortgage.
• Consolidate Debt: Combine higher-interest debt into your mortgage to lower your overall interest payments.

Strategic Tip: Regularly review your mortgage terms and consider refinancing when rates drop or if your financial situation changes significantly.

6. Shop Around for the Best Mortgage Rates

Importance of Comparing Rates

Mortgage rates can vary significantly between lenders. By shopping around, you can find the best rate that suits your financial needs. Don’t just settle for the rate your bank offers—explore options with the help Allison Kehler-Tolley, your Lethbridge mortgage broker.

Utilize a Mortgage Broker

Mortgage brokers can access a wide range of lenders and rates, often securing better deals than you can find on your own. They can also provide expert advice tailored to your financial situation.

Strategic Tip: Always compare at least three different mortgage offers before making a decision. This ensures you’re getting the best rate and terms possible.

7. Utilize the First-Time Home Buyer Incentive

What Is the First-Time Home Buyer Incentive?

The First-Time Home Buyer Incentive is a government program that provides eligible first-time buyers with 5% or 10% of their home’s purchase price to put toward their down payment. This shared equity mortgage helps lower monthly payments, making homeownership more affordable.

How to Qualify

To qualify, you must be a first-time home buyer with a household income of $120,000 or less. The mortgage must be four times your qualifying income or less.

Strategic Tip: If you’re a first-time buyer, explore this incentive to reduce your down payment costs and lower your mortgage balance, making your payments more manageable.

8. Make Bi-Weekly Payments Instead of Monthly

Why Bi-Weekly Payments Matter

Switching from monthly to bi-weekly payments means you’ll make 26 payments a year instead of 12. This effectively adds one extra monthly payment annually, helping you pay off your mortgage faster and save on interest.

Calculation Example:

Assume a $400,000 mortgage at a 3% interest rate over 25 years:

• Monthly Payment: $1,897.36
• Bi-Weekly Payment: $948.68
• Interest Savings: Approximately $16,000 over the life of the mortgage

Strategic Tip: Set up bi-weekly payments to reduce the term of your mortgage and save on interest.

9. Consider Mortgage Portability

What Is Mortgage Portability?

Mortgage portability allows you to transfer your existing mortgage to a new property without incurring penalties. This is particularly useful if you move before your mortgage term ends, as it helps you avoid breaking your mortgage and paying hefty fees.

Benefits of Portability

• Avoid Penalties: Save thousands by not having to break your mortgage.
• Maintain Interest Rates: Keep your favorable interest rate even when purchasing a new home.

Strategic Tip: If you anticipate moving during your mortgage term, opt for a portable mortgage to save on penalties and retain your current interest rate.

10. Utilize a Mortgage Payment Calculator

Why Use a Mortgage Payment Calculator?

A mortgage payment calculator helps you estimate your payments based on different scenarios, such as varying interest rates, payment frequencies, and amortization periods. By adjusting these factors, you can see how changes affect your overall mortgage cost and make informed decisions.

Conclusion

Saving on your mortgage is achievable through informed decisions and strategic actions. Whether it’s selecting the right term, exploring rate options, or taking advantage of prepayment privileges, every step you take can lead to significant savings. By implementing the strategies outlined in this guide, you can reduce your mortgage costs, pay off your home sooner, and secure your financial future.

We all invest a lot into our homes, so we want to make sure we are enjoying them to the fullest all year long.

As we head into the prime of summer, there is no better time to update your space to turn it into the perfect staycation paradise so that you can fully enjoy the season!

Here are my top 5 tips for creating that backyard oasis:

• Expand Your Outdoor Entertaining Area: Take your outdoor space to the next level by adding amenities for entertaining. Consider installing an outdoor kitchen or bar area complete with a grill, refrigerator, and seating area. Adding a pergola or canopy can provide shade and shelter, while outdoor speakers and a fire pit create ambiance for evening gatherings under the stars.
• Incorporate Relaxation Zones: Create multiple relaxation zones throughout your home to cater to different activities and moods. Designate a cozy corner with plush seating and soft lighting for reading or meditation. Set up a hammock or hanging chair in the backyard for afternoon naps or stargazing. Incorporate a spa-like bathroom retreat with a luxurious bathtub, candles, and soothing music for a pampering escape.
• Embrace Indoor-Outdoor Living: Maximize the connection between your indoor and outdoor spaces to blur the boundaries and create a seamless flow. Install sliding glass doors or folding patio doors to open up your living areas to the backyard, allowing for easy access and natural ventilation. Arrange indoor furniture to face outdoor views and encourage indoor-outdoor socializing.
• Infuse Tropical Vibes: Bring the vacation vibes home by incorporating tropical elements into your decor. Add pops of vibrant colors, tropical patterns, and lush greenery throughout your home. Hang palm leaf or bamboo curtains, display tropical fruits in bowls, and accessorize with seashells and driftwood for a breezy, island-inspired ambiance.
• Curate Outdoor Activities: Make the most of your outdoor space by curating a variety of activities to enjoy during your staycation. Set up a mini-golf course, bean bag toss, or giant Jenga for backyard games. Create a movie night under the stars with a projector and outdoor screen. Arrange a DIY spa day with facials, massages, and foot baths for a rejuvenating retreat at home.

By incorporating these ideas into your home and yard, you can transform your space into a paradise that grants you relaxation, entertainment, and rejuvenation all summer!

With the first Bank of Canada rate drop having occurred in June, many individuals are looking at the housing market with renewed vigor and an expectation that rates will continue to come down to a more sustainable level.

If you are someone who is considering entering the housing market this summer, there are a few things you should keep in mind:

Determine Your Budget

Download my app from Google Play or the Apple iStore to help you calculate mortgage payments, affordability, the income required to qualify, and even estimate your closing costs! It also allows you to connect directly with me through the app so that I can answer any questions you have right in the palm of your hand.

Save For a Down Payment

Your typical down payment should be at least 5% of the purchase price, though 20% down is preferable as anything below that requires default insurance. Your down payment can be done through your own savings account or RRSP’s.

• Thanks to the Federal Government’s Home Buyer’s Plan, first-time homebuyers can leverage up to $60,000 from their RRSPs (maximum of $120,000 for a couple).
• PRO TIP: The First Home Savings Account (FHSA) is specifically designed to help first-time homebuyers save for their down payment without having to pay taxes on the interest earned on their savings

Take Advantage of First-Time Buyer Programs

Did you know? First-time home buyers are eligible for an exemption, reducing the amount of property transfer tax paid, depending on the property’s value.

• PRO TIP: In addition, Ontario, British Columbia, Prince Edward Island, and the City of Toronto offer land transfer tax rebates for first-time homebuyers.

Get Pre-Approved

This means that a lender has stated (in writing) that you qualify for a mortgage and what amount, based on submitted documentation of your current income and credit history. A pre-approval usually specifies a term, interest rate, and mortgage amount and is typically valid for a brief period, assuming various conditions are met.

There are a few benefits to pre-approval such as:

• It confirms the maximum amount you can afford to spend.
• It can secure you an interest rate for 90-120 while you shop for your new home
• It lets the seller know that securing financing should not be an issue. This is extremely important for competitive markets where lots of offers may be coming in.

Understand the Closing Costs

Closing costs are a one-time fee associated with the sale of a home and are separate from the mortgage insurance and down payment. Typically, these costs range from 1.5-4% of the purchase price, depending on your location. Factoring these costs into your maximum budget can help you narrow down an entirely affordable home and ensure future financial stability and security.

Here are a few closing costs to keep an eye out for:

• Land Transfer Tax: This is calculated as a percentage of the purchase price of your home, with the amount varying in each province. Some cities, such as Toronto, also have a municipal LTT.
• Legal Fees and Disbursements: You can expect to incur a minimum of $500 (plus GST/HST) on legal fees for the preparation and recording of official documents.
• Title Insurance: Most lenders require title insurance to protect against losses in the event of a property ownership dispute. This is purchased through your lawyer/notary and is typically $300 or more.
• PST on CMHC Insurance: Though CMHC insurance itself is financed through the mortgage, PST on the insurance is typically paid at the lawyers and sometimes deducted from your advance.
• Home Inspection Fee: A home inspection is highly recommended as a condition of your Offer to Purchase to prevent any future surprises. This can cost around $500.
• Appraisal Fee: An appraisal is performed to certify the lender of the resale value of the home in the case you default on the mortgage. The cost is usually $400 – $600 but is typically covered by the lender.
• Property Insurance: Property insurance covers the cost of replacing your home and its contents, and must be in place on closing day. This is paid in monthly or annual premiums.
• Prepaid Utility Bills: You may need to reimburse the previous owner of your property for prepaid costs such as property taxes, utilities, and so forth.
• Property Taxes: Property taxes are due on an annual basis and are calculated as a percentage of the home value and vary by municipality. You also may need to reimburse the previous property owner if he/she has already paid property taxes for the full year.

Getting Proper Coverage: Purchasing a home is likely the largest investment you will make, and you want to ensure it is protected.

Various insurance items can be obtained for your home, including:

• Title Insurance: Required by most lenders to protect against losses should a property ownership dispute arise. This insurance is done through your lawyer/notary and typically runs $100-$300.
• Mortgage Protection Insurance: An optional debt replacement that protects your family should anything happen in the future. Many homeowners believe they are covered through their life insurance policy, but the Manulife Mortgage Protection Plan is different. Before closing, it’s important to look at the costs and coverage for you!
• Property & Fire Insurance: Mandatory and needs to be arranged before your closing appointment. Not sure how much to budget for? Get quotes from various insurance companies! Your lawyer/notary or myself can provide recommendations
• Default Insurance: Only required if you purchase a house with less than a 20% down payment.

Whether you’re looking at a condo, townhouse, rancher, or a two-story property, there is nothing quite like your first home! However, the mortgage process can be intimidating – and that’s where I come in! If you’re looking to get started on your home-buying journey, don’t hesitate to reach out to me today.

 

What Affects My Credit Score?

By TransUnion

By now, most graduates have waved goodbye to grades, at least for the summer.  But whether graduation was long ago or last week, you’re still being graded in one way you may not have realized: your creditworthiness.

Credit scores may be an evaluation of your creditworthiness, one way or another.  In that sense, scores are very much like  grade s- you’re in control, and good, stead credit habits can go a long way.  But just like with school grades, it also helps to have an idea of what credit score calculations are based on.  That way, you can figure out what you need to work on so your credit’s at the top of the class when it counts – applying for a rewarding credit card, getting a great mortgage rate, and other situations where good credit may be critical.

Most credit scores can share some similarities in what they value.  In approximate descending order of importance (most impact to least impact), these several factors tend to influence credits scores of all kinds, including:

• Payment History.  Do you pay your bills on time?  Your credit score may take into account any missed or late payments, how long you went unpaid, and how often.
• Amount owed.  This includes totals you owe to all creditors, how much you owe on particular types of accounts, and how much available credit you have used.
• Types of Credit.  Generally speaking, the more types of accounts you have (credit cards, retail accounts, mortgage loans, installment loans), as well as the total number of accounts you have, influences your credit score.
• New Loans.  Have you shopped for or received new credit recently?  Applying for credit with different lenders within a short period of time may lower you score, especially if you have a relatively short credit history to begin with.
• Length of Credit History.  The age of your oldest credit account, the age of your newest account, and the average age of all your accounts may each play a role in the calculation of your score.

If this seems overwhelming, don’t worry.  Just make sure you’re doing your best to pay your bills on time and regularly check in on your credit.  When you’re ready to take a deeper dive, look at how you can work on some of the above factors.  With just a little bit of studying, you can graduate to a higher level of credit knowledge.

To review the original article, please click here.

 

The date of a proposed increase in the stress test rate for uninsured mortgages is looming, with the Office of the Superintendent of Financial Institutions (OSFI) set to publish recommendations on the hike on May 24.

The change – which would see the threshold increase on June 01 to 5.25% or two percentage points above the market rate, whichever is higher – would cause few ructions in the mortgage industry, having already been widely discussed since OSFI announced its proposal in early April.

However, the CEO of a prominent industry association says that mortgage professionals should be attuned to another prospect in coming weeks: that the OSFI announcement could be accompanied by a similar hike in the stress test level for insured mortgages.

Paul Taylor, CEO of Mortgage Professionals Canada (MPC) (pictured), told Mortgage Broker News that there remained a real possibility of Finance Minister Chrystia Freeland unveiling such an increase before the beginning of June.

“There’s some anticipation that the minister of finance will also match OSFI’s uninsured qualification rate for the insured stuff,” he said. “I think that many in the industry anticipate that [Freeland] will make an announcement very soon following OSFI’s.

“The superintendent is supposed to make a determination publicly on the 24th of this month for a June 01 implementation, so it’s not inconceivable that [Freeland] would make an announcement on the same day for the insured change to also occur on June 01.”

The impact of OSFI’s proposals for the stress test on uninsured mortgages would likely be mild, with Taylor pointing out that they would only reduce purchasing power by around 4% for those homebuyers whose down payments are more than 20%.

However, he said that a stress test hike for insured mortgages would likely have a more significant, and detrimental, effect on the market and the Canadian economy.

“We [MPC] are hoping that that doesn’t happen immediately, given that the people with less than 20% down are predominantly first-time buyers,” he said. “Given that the market is so intense, reducing qualification for insured mortgages really will push people out of it. That might have more negative long-term economic consequences for Canada.”

While Taylor emphasized that his hope was for the federal government to wait and see how things play out before making a decision on increasing the insured stress test rate, he noted that the finance department would be receiving responses to the OSFI consultation on May 24, and could therefore act swiftly. “Hopefully they’ll wait a while,” he said, “but it could be as soon as the same day.”

https://www.mortgagebrokernews.ca/news/alternative-lending/wholl-be-most-affected-by-the-stress-test-hike-355414.aspx

Article compliments of Mortgage broker News

REAL ESTATE UPDATE
“Sales continued to surge this month, pushing year-to-date sales up to 736 units. Not only is this a record start to the year but reflects sales that are over 66 per cent higher than long-term averages. Lethbridge has continued to see a steady rise in employment levels since the lows of the pandemic. The improving job market, low mortgage rates and some sense of urgency given concerns over rising mortgage rates and potential rule changes are likely contributing to the jump in sales.

While new listings did reach levels that have been higher than what was seen over the past four years, the strong pace of sales was enough to prevent any significant additions to inventory levels and keep the months of supply just above two months. This is the lowest level of months of supply seen since 2007. While some shifts in distribution are likely impacting prices, generally prices in the area have been trending up. On a year-to-date basis, both median and average prices have increased by nearly 10 per cent.”
https://www.albertarealtor.ca/page/alberta-statistics