Top Tips to Master Your Monthly Mortgage Costs in Canada
Posted On September 23, 2023
Monthly mortgage payments can be challenging for homeowners, especially when you have other expenses. Though they cannot be wished away, you can explore some strategies and tips to master them and manage your finances better.
Various online tools can help you devise a budget and a plan to help manage your costs, including a mortgage calculator. Even if your dream home is one of the pricey Mississauga homes for sale, you can tailor your mortgage payments to suit your financial capabilities.
Let’s explore the top strategies to minimize your monthly mortgage costs in Real Estate Canada.
In any mortgage, the initial amount that the homebuyer invests when buying a property is called the downpayment. The percentage of down payment you can bring to the table significantly influences the mortgage payments. Simply put, the larger your down payment, the less you need to borrow and, therefore, the less interest you’ll have to pay.
The Canadian Housing and Mortgage Corporation and other lenders insist on mortgage insurance if you have less than 20% of the purchase price for a downpayment. Mortgage insurance can make up to a staggering 4.5% of the total mortgage value. To give you an idea, on a mortgage of $290,000, that would mean an additional $13,050.
When you make a down payment of 20% or more, you avoid the mortgage insurance charges, reducing your overall borrowing costs.
Mortgage Type: Fixed or Variable?
The Canadian housing market has many types of mortgages, but the most common are fixed and variable mortgages. When looking at houses for sale on the best real estate websites in Canada, you should also consider what type of mortgage would work best for you.
Fixed mortgages are exactly what they seem to be – they provide you with a locked-in interest rate for the entire term of your loan, usually ranging from 1 to 5 years. This mortgage type lets you know the exact amount and percentages of principal and interest you will pay over the term.
Variable mortgages, on the other hand, do not have a standard fixed interest rate. You will have fluctuating payments as and when the Bank of Canada’s prime rate changes. Statistically speaking, variable-rate mortgages result in you repaying less over the long term. But, in the short term, you could make larger payments if interest rates increase..
Mortgage Term Extension
The Mortgage Term or Amortization refers to the period of time you have to repay your mortgage in full. An extension of your mortgage term can help keep your monthly payments under control, even if interest rates rise. However, knowing and understanding that you will pay more interest in the long term is important.
Additionally, when you extend your amortization period, you could consolidate other high-interest debt in your mortgage. However, this depends on your credit score and current financial situation.
Consult a Mortgage Broker
A mortgage broker can help the home buyer connect with many lenders with one easy application, providing you with many mortgage options and access to lenders who may offer more favourable terms and lower payments.
Moneylenders are just one example of lenders you can only access through a mortgage broker. If you’re only using the big banks, consult a mortgage broker to see all the options available.
Reduce Your Debts
If your monthly liabilities include high-interest debts such as car payments, credit cards, or lines of credit, consider drawing funds from your home equity to pay down these high-interest debts. This can reduce your overall monthly debt outflows and the interest you pay monthly.
Start a Savings Account
If you do not have other high-interest debts but may struggle with increasing mortgage payments, you can cut your monthly payments by exploring refinancing options. Putting these funds into a separate high-interest savings account gives you a fund to draw on if your mortgage payments exceed your capabilities.
Adjust Your Payment Frequency
Consider an accelerated bi-weekly payment – you can make extra payments toward your principal each year. Over time, that leads to more savings for you.
Rent Portions of Your Property
Many people are increasingly turning to creative ideas to use their homes to create revenue that can help offset their mortgage payments. Renting out the garage as storage space, parking space rentals, and short-term rentals of extra rooms are all unique ways people generate monthly income with their homes.
Look at Pre-payment Options
The pre-payment option in a mortgage contract allows you to pay extra on the principal. Depending on your lender, the amount you are allowed to pre-pay can vary from 5-20%, making a serious dent in your loan.
Interest Rates Vs. Flexibility
Many people focus only on the interest rate when it comes to their mortgage. A lower rate over the length of the mortgage could help save a significant amount, which is something you want. A great rate definitely has an impact, but having a flexible mortgage with the features you need to match your unique financial goals can be more important.
In conclusion, effectively managing your mortgage costs in Real Estate Canada requires a holistic approach.
Use a mortgage calculator and consider your down payment, type of mortgage, and interest rates. Also, consider the services of a mortgage broker and strategies like renting portions of your property or adjusting your payment frequency.
With these strategies, you can master your monthly mortgage costs and enjoy your dream home without financial stress.