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There are many things you can do to lower your cost, before you apply for and when you already have a mortgage.
Following these simple rules can save home buyers a lot of money.
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| What You Can Do |
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 Verify Your Credit History
Examine in detail your credit record before you apply for a mortgage. You should contact a credit bureau to obtain a copy of your report. If you find errors having negative impact on your credit rating get them corrected.
Protect Your Credit Rating
When you look around for financing your rating may go down every time a lender orders a credit check on you. You can minimize the damaging
effect of frequent credit checks if you inquire about financing within a short time. All your requests (or your broker's) made within 10 days are counted
as one mortgage application.
Reduce Number of Credit Cards
Possession of many credit cards (or line of credits) with high limits, even if you do not use them may lower your credit rating.
Unused open credits reflect your ability to fall quickly into an extra debt. You can cancel excessive credit cards (leaving one or two that you really need) to improve your rating. Make sure they do not affect you any longer before applying for mortgage.
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Negotiate Your Interest Rate
Most loan officers have the authority to give customers a break on interest rates. Ask lenders what rate you can get if you give them all your business. Then go to
your own bank and ask whether they can do any better.
Negotiate Mortgage Renewal
Don't accept right away your lender's offer for the renewal of your mortgage when its term expires. You should rather think of it as a starting point from which you negotiate new rates. Switching lenders is quite simple. Although it may cost you a few hundred dollars it may be well worth it. You can hunt for the best deal yourself or use a mortgage broker when i's time to renew.
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Use RRSP for Down Payment
First time home buyers may borrow up to $25,000 (per person) from own RRSP under provisions of the Home Buyers' Plan. Two years after the
withdrawal, they must repay at least 1/15 of that amount every year over the next 15 years. The RRSP loan becomes subject to income tax if it's not repaid within the allowed
time limit.
Invest in Tax Free Savings Account (TFSA)
This is a new long term investment opportunity to save for your down payment. Starting from January 2009 Canadians can contribute up to $5,000 per year into the TFSA, in addition to the RRSP limit. Your unused TFSA contribution room can be carried forward. Money contributed to this account (unlike RRSP contributions) is not tax-deductible. Earned income will not be taxed and you can withdraw the funds at any time. Withdrawals from this account are tax free.
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Think Ahead If You Plan to Sell
If you plan to sell your house in a near future
an open and portable mortgage with pre-payments options should be on your priority list.
Choose Pre-payment Options Wisely
Decide how much you can save for extra payments. Open mortgages have higher rates than closed ones.
You can usually obtain a closed mortgage at 1% less along with 10 to 20% pre-payment privileges. Why to pay more in interest charges if you won't be able to exceed this limit? You can always make bigger lump sum
payments at the renewal time with no penalty.
Act Quickly If You Can't Pay
If you're having trouble coming up with mortgage payments you should call your lender immediately. Most of them are willing to work out some solution to prevent a
foreclosure or power of sale. Even if you aren't in a danger of loosing your house missed payments will ruin your credit rating. Later on, you will suffer a higher cost of financing when
it's time to renew your mortgage.
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| How to Pay Faster and Save |
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Initially, most of a monthly payment is used to pay interest, with a small amount going to a
principal. Your payments will shift more towards the principal after few years.
Reducing the principal at the beginning of that cycle will save you a lot of money on interest, and you will pay off your mortgage faster. |
Take a look at this example of how payments will change over 20 years for $100,000 at 8% :
| Time Line | Principal ($) | Interest ($) | Balance ($)
| | 1 month | 105 | 667 | 99,895
| | 6 months | 109 | 663 | 99,358
| | 1 year | 113 | 659 | 98,691
| | 5 years | 156 | 616 | 92,274
| | 10 years | 232 | 540 | 80,763
| | 20 years | 515 | 257 | 38,065 |
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Shop For Semi-Annual Interest
Mortgages are usually compounded semi-annually. Interest added to your balance more frequently will increase your cost of borrowing.
| Maximize Down Payment
Save as much as you can. That's the first thing to begin with - the less you borrow the less you have to pay.
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Make Extra Contributions
Whenever you can, for example if you get a cash bonus at work, use pre-payment options to reduce your principal.
| Pay More Frequently
Bi-weekly or weekly payments, instead of monthly contributions can save you thousands of dollars.
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 How much can I save paying bi-weekly ? |
Let's analyze a $100,000 loan at 6% interest, compounded semi-annually. According to the Canadian Bankers Association making bi-weekly instead of monthly payments can save over $17,000 in interest and one can pay it off the four years earlier.
| Payment Frequency | Number of Payments | Interest | Principal
| | Monthly ($640/month) | 300 (25 years) | $91,941 | $100,000
| | Accelerated bi-weekly ($320/2 weeks) | 546 (21 years) | $74,335 | $100,000
| | Savings | | $17,606 | |
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Round Up Your Payments
For instance, from $931 to $940 (or even better to $950). This won't have much impact on your monthly budget but can save quite a bit over your mortgage
lifetime.
| Keep Up Your Pace
If you negotiate a lower rate for another term keep your payments at the same level. You already know you can afford them. When
your income goes up increase your payments accordingly. |
| What if I choose a shorter amortization ? |
This example shows how you can reduce the cost of borrowing with a shorter amortization. Notice that the total cost of a 10 year mortgage
drops dramatically in comparison with 25 years. It's a huge benefit for whose who can carry higher monthly mortgage payments.
| $100,000 at 7% semi-annual interest
| | Amortization | 25 years | 20 years | 15 years | 10 years
| | Monthly Payment | $700.42 | $769.31 | $893.25 | $1,155.94
| | Total Cost | $210,123 | $184,634 | $160,785 | $138,713
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