Mortgage Advice

[MJK]

Hello, advice needed please.

I can get a 5 year fixed rate of 3.75%. Down payment of $11,000.

Basically I want to know what is the best, smartest way to do a mortgage. Should I do 25 years, 25 year amortization, make extra payments...?

Basically I am buying a home in Newfoundland but I will be staying in Nunavut for two more years. I want to pay off as much as possible in the two years as I can.

THanks!

[Deegee]

If you will be prepaying more then the prepayment penalty clause outlines on that deal then I would look into a variable open Mortgage so you do not pay penalties that could make that rate be worse for you.

That is if you amortize it over 20-25 years.

If you decide to amortize it over a short time period that is your decision to make and prepayment penalties might not come into play.

[MJK]

Can someone explain to me exactly what amortization is...I really don't know.

LOL

Thanks!

[Deegee]

Amortization is how long you will take to payoff the Mortgage.

With a 5 year term, when the 5 years is up you will have to renew in at a different rate that is offered by that company.

So if you wanted to take 25 years to pay, it would be a 5 year term, 25 year amortization.

[loob job]

Send Mike Oxlong a PM, he'll be able to help you out, he's a mortgage broker and answered a couple questions for me. I know he's helped out a couple guys on here with glowing reviews.

[CalgaryFan1988]

Originally Posted by MJK

Hello, advice needed please.

I can get a 5 year fixed rate of 3.75%. Down payment of $11,000.

Basically I want to know what is the best, smartest way to do a mortgage. Should I do 25 years, 25 year amortization, make extra payments...?

Basically I am buying a home in Newfoundland but I will be staying in Nunavut for two more years. I want to pay off as much as possible in the two years as I can.

THanks!

In my experience the most simple things are:

- pay either weekly, or bi-weekly because that pays off the mortgage much quicker and you hardly notice paying the extra.

- Don't put your property taxes in with your mortgage, because then you are paying interest on your taxes.

- try and put down 25 percent of the mortgage when you buy. It saves you paying the Canadian Mortgage Insurance (which is an additional charge on top of your mortgage for insurance).

[Sample00]

Originally Posted by CalgaryFan1988

- Don't put your property taxes in with your mortgage, because then you are paying interest on your taxes.

I could be wrong, but I dont think thats the case. The property taxes are a seperate component of your mortgage payment. The amount of your taxes that is included in your payment gets put into a seperate account called your property tax account. At the end of the city;s tax year, the mortgage company will then pay the property taxes on your behalf. Having said that, you may want to inquire if the mortgage company pays you interest on your property tax account. Some do, some dont.

I prefer to have the town withdrawal the property taxes for my home directly from my bank account. My financial institution doesnt pay me interest on holding onto my property tax money til its due.

[JohnnyFlame]

Originally Posted by MJK

Hello, advice needed please.

I can get a 5 year fixed rate of 3.75%. Down payment of $11,000.

Basically I want to know what is the best, smartest way to do a mortgage. Should I do 25 years, 25 year amortization, make extra payments...?

Basically I am buying a home in Newfoundland but I will be staying in Nunavut for two more years. I want to pay off as much as possible in the two years as I can.

THanks!

Are you then renting it out for two years? If so you can really take the bi-weekly payment advice and run with it.

[CalgaryFan1988]

Originally Posted by Sample00

I could be wrong, but I dont think thats the case. The property taxes are a seperate component of your mortgage payment. The amount of your taxes that is included in your payment gets put into a seperate account called your property tax account. At the end of the city;s tax year, the mortgage company will then pay the property taxes on your behalf. Having said that, you may want to inquire if the mortgage company pays you interest on your property tax account. Some do, some dont.

I prefer to have the town withdrawal the property taxes for my home directly from my bank account. My financial institution doesnt pay me interest on holding onto my property tax money til its due.

You might be right, i'm not an expert. My mortgage broker told me it would save me money if I paid my property tax directly and not through my mortgage, so I took him at his word.

[Peanut]

Damn, 3.75% is a good rate. You basically can't go wrong with that no matter what you do. Our is at 5.1% (doh) and we looked at refinancing when we moved recently, but the penalty was upwards of $15,000.

[red sky]

Bi-weekly accelerated payments will save you a lot of money of the life of the mortgage

[MJK]

I am looking at biweekly payments but would it be even better still to go with weekly?

[red sky]

On monthly vs. biweekly vs biweekly accelerated:

http://www.mortgageinsight.ca/artman...e_Payments.php

[Sample00]

Originally Posted by MJK

I am looking at biweekly payments but would it be even better still to go with weekly?

yes, because you pay the principal off weekly then and the interest is recalculated on the principal balance outstanding.

[Sylvanfan]

Originally Posted by Sample00

I prefer to have the town withdrawal the property taxes for my home directly from my bank account. My financial institution doesnt pay me interest on holding onto my property tax money til its due.

Yeah, avoid letting the bank collect the property taxes. Deal with the municipality if you can and pay monthly to them, that way your tax payment is always up to date and you haven't paid too much and have to get it back from a lawyer if you sell the property, and you also don't have the bank asking you for the full sum for the next year come June that first year.

I used to pay my mortgage weekly when I had one, found that it worked out better for me since my wife and I got paid every two weeks and were on alternating weeks for getting paid. Over the 25 year term it can result in pretty significant savings.

[tvp2003]

Originally Posted by Sample00

yes, because you pay the principal off weekly then and the interest is recalculated on the principal balance outstanding.

I was looking at this exact issue before -- if you look at the link that red sky provided, there is only $179.52 difference (over 25 years!) between making monthly payments and bi-weekly payments. Not a lot of interest savings.

Accelerated bi-weekly payments, however, are a different animal because you are actually making an additional payment over and above your regular payments...

[onetwo_threefour]

Originally Posted by tvp2003

I was looking at this exact issue before -- if you look at the link that red sky provided, there is only $179.52 difference (over 25 years!) between making monthly payments and bi-weekly payments. Not a lot of interest savings.

Accelerated bi-weekly payments, however, are a different animal because you are actually making an additional payment over and above your regular payments...

FYI, that link sucks... (although it's true that the savings for non-accelerated aren't much, the explanaiton is all messed up)

It confuses semi-monthly with bi-weekly vs. bi-weekly accelerated.

You can potentially have:

Monthly
Semi-Monthly (payment = monthly/2 paid 24 times per year)
Bi-Weekly (payment = monthlyX12/26 paid 26 times per year)
Weekly (payment = monthlyX12/52 paid 52 times per year)
Semi-Monthly accelerated (payment = (monthlyX13)/24 paid 24 times per year)
Bi-Weekly accelerated (payment = monthly/2 paid 26 times per year)
Weekly accelerated (payment = monthly/4 paid 52 times per year)

Not all of these options are offered by all all lenders, and some are offered by only one or two, but every single one of them has a different impact on the amortization. The above list is in order from least impact on amortization to most impact. It is simply not correct to equate semi-monthly to bi-weekly, and bi-weekly will save a bit more than what is stated in the link.

Here's a better link, although it doesn't include semi-monthly accelerated. I only know of one lender that offers that though (I believe it's First National Financial), so it's not a big omission.

http://www.fcac-acfc.gc.ca/eng/publi...ptions-eng.asp

[Mike Oxlong]

Lots of great answers in here already. Basically you will save money by going with weekly or bi weekly accelerated payments.

All lenders offer different pre payment options. Most of them will allow you to pay up to 20% of the principal off per year without penalty and also increase your payments by 20% as well. However some will allow you to do 25% and some only 15%. Make sure you know exactly what is offered by the lender you are getting the 3.75% through.

If you can put down significant lump sum on the mortgage every year that will help you pay it down REALLY fast. Especially in the first years of the mortgage when most of your payments are going towards interest and not much is going towards principal.

Feel free to ask anymore questions. I have links to mortgage calculators on my website as well where you can enter different scenarios and see the different outcomes as far as interest paid and overall ammortization schedules.

Congrats on the house!

[ma-skis.com]

When you're choosing which to go with, how you get paid is generally an important factor, I know that being paid monthly makes it much harder to make weekly or even biweekly payments, particularly when you need to make three payments in one month.

[MJK]

This is with the RBC bank.

Basically from what I understand I would be making bi-weekly payments but I have the option to put down a 10% lump sum every year on the anniversary of the loan and on top of that I can double up my bi weekly payments if I chose to do so. Here is an e-mail he wrote me.

" You can do open variable 5 year term, presently at prime (2.5) plus 1 per cent or 3.25 today. No limits on pre payments. It is variable and if the prime stays low over the next 2 years or so (if we are still in the recession, it will stay low...but it could go up. With 5 year fixed at 3.75 you can pre pay with penalty by paying biweekly accelerated, 10 per cent each year, double up payments. Overall if all 3 are done you would pay 25 percent and have a great rate fixed!"

Thoughts?