One of the biggest and most expensive investments is home ownership. Whether it’s your primary residence, a vacation home, a business location or an investment property, you will need a mortgage if you don’t have the cash to buy it outright.
Your lending institution will determine the rates and terms you qualify for. Then you will begin paying the loan off over the next several years or decades.
Photo by Precondo CA on Unsplash
It seems like such a long-term commitment with high payments, and the lender makes a lot of profit along the way. If only you could figure out how to decrease your monthly pay.
The good news is that doing this can benefit your wallet tremendously. To help you down the right financial path, here are some methods for lowering your mortgage payments.
Shop Around to Refinance Your Mortgage
Banks and other lending institutions compete directly with each other and want your business. Knowing what other offers are available is wise if you want to lower your mortgage payments.
Some lenders have different qualification criteria and can offer better rates on specific terms. This is where you can benefit, so watch for rate decreases from competitors and see if you can change lenders.
If you are not at the end of your current term, breaking a mortgage may come with penalties, so speak with a mortgage specialist to see if it’s the right time to do it as, over the long term, you can still save money with a lower mortgage payment.
Use a Mortgage Broker
Using a mortgage agent is beneficial because they monitor multiple banks’ rates and offerings and have close relationships with them. They can often get better client rates and terms, meaning a lower monthly payment.
Ultimately, refinancing your mortgage to take advantage of a better rate is smart, as your monthly payments will be lower, and you may also pay down your mortgage faster.
Increase the Amortization
Getting a mortgage has three main numbers that dictate your monthly payment:
- Interest rate
- Term
- Amortization
Amortization is the number of years the loan is spread over, typically around 25 years, depending on whether it is an existing mortgage. If you have had your mortgage for several years and want to lower the payment, you can ask your bank to increase the amortization.
You will have a lower monthly payment as the mortgage can be extended to 30 years. However, this commits you to longer payments. This is best done at the end of your current term, and then if you come in with some money after, you can always make changes again.
Photo by Scott Graham on Unsplash
Change Your Mortgage Type
When you secure a mortgage, you’re faced with several terms and options, each accompanied by distinct interest rates that affect your monthly payment. An open mortgage provides the flexibility to make larger payments or pay off the mortgage entirely without penalties.
In contrast, a closed mortgage maintains a fixed payment structure without additional payments. Meanwhile, a convertible mortgage can change your mortgage type mid-term should it prove beneficial.
A high-ratio mortgage is typically taken for those without at least a 20% down payment. On the other hand, a conventional mortgage is available to individuals who can provide over 20% as a down payment.
Interest rates are another consideration: fixed-rate mortgages ensure your interest rate remains consistent throughout the term, whereas variable-rate mortgages adjust according to changes in the Bank of Canada rate, potentially altering monthly payments.
Term Length
Beyond these different types of mortgages, you also have to determine the term length. It often depends on what you qualify for, ranging from short-term mortgages under three years to long-term ones over three years. Five years is a common term, and with all terms, you start a new term at the end of them unless you can pay off the mortgage entirely.
If you have extra money, like a bonus, inheritance, or windfall, apply it to your principal amount. While it won’t change your monthly payments immediately, it certainly decreases the overall amount owing. It puts you in a better financial position to start the next term with a lower payment when your term is up.
In the meantime, use these methods to lower your mortgage payment and free up money for other things in your life.
Leave a Reply