With the threat of looming interest rate hikes, here are a few tips to save potentially thousands of dollars on your Red Deer mortgage.
Shop around for a deal, and not just on the interest rate
Many people shop around for the lowest interest rate, but they ignore other factors that could save them a lot of money. For example, lower closing costs or the ability to put more money down against the principal could save you a lot of money over the long-term. Conversely, you don’t want to be hit with prepayment penalties.
What if you’re refinancing your mortgage? Ask the lender if their interest rate differential or IRD is calculated based on their discount rate or the far higher posted rate. This difference will add up to thousands of dollars over the life of the loan. Big Banks typically use the fixed-rate penalties using posted rates. Talk to a Red Deer mortgage broker to find out what alternative lenders would charge you.
Another issue to consider is portability. If there are good odds you’ll be moving in the next few years, can you take your mortgage with you? If you buy a more expensive home, this could save you money when they combine the new loan with your current, good loan terms.
The final factor to take into consideration is the penalties due when you break the mortgage. No one wants to sell a home sooner than planned, but this may have to happen after a divorce, death or job loss.
Pay It Down
Make lump-sum payments toward the loan balance whenever possible. When you make a lump-sum payment directly to the principal, it will go entirely to the principal. This has a far greater impact than a monthly house payment for the same amount since part of that money will pay your monthly interest payment. Put every bonus, Christmas gift and inheritance against the loan. You’ll have a guaranteed rate of return equal to the interest rate on the Just paying 2000 dollars a year more toward a 300,000 mortgage will save you more than 17,000 dollars in interest on your loan. You’ll also pay it off five years faster, assuming a three percent interest rate and a 25-year amortization. Furthermore, you’ll save money over the long term because you aren’t experiencing lifestyle creep as you spend windfalls and raises.
Accelerate Mortgage Payments
Accelerating your Red Deer mortgage payments will result in a shorter amortization period. More importantly, it is relatively painless. The simplest way to do this is to switch to a biweekly mortgage. You’ll make half a house payment every 2 weeks instead of a full payment every month. Since there are 52 weeks and 26 biweekly periods in a year, you’ll end up making a de facto thirteenth house payment every year. That takes about three years and 16,000 dollars off the average 300,000 mortgages with a roughly four percent interest rate.