Choosing Your Mortgage Amortization

Selecting the length of your mortgage amortization period – the number of years it will take you to become mortgage free – is an important decision that will affect how much interest you pay over the life of your mortgage.

While the lending industry’s benchmark amortization period is 25 years, and this is the standard that is used by lenders when discussing mortgage offers, and usually the basis for mortgage calculators and payment tables, shorter or longer timeframes are available – to a maximum of 35 years.

The main reason to opt for a shorter amortization period is that you will become mortgage-free sooner. And since you’re agreeing to pay off your mortgage in a shorter period of time, the interest you pay over the life of the mortgage is, therefore, greatly reduced.

A shorter amortization also affords you the luxury of building up equity in your home sooner. Equity is the difference between any outstanding mortgage on your home and its market value.

While it pays to opt for a shorter amortization period, other considerations must be made before selecting your amortization. Because you’re reducing the actual number of mortgage payments you make to pay off your mortgage, your regular payments will be higher. So if your income is irregular because you’re paid commission or if you’re buying a home for the first time and will be carrying a large mortgage, a shorter amortization period that increases your regular payment amount and ties up your cash flow may not be the best option for you.

Your mortgage professional will be able to help you choose the amortization that best suits your unique requirements and ensures you have adequate cash flow. If you can comfortably afford the higher payments, are looking to save money on your mortgage or maybe you just don’t like the idea of carrying debt over a long period of time, you can discuss opting for a shorter amortization period.

Advantages of longer amortization

Choosing a longer amortization period also has its advantages. For instance, it can get you into your dream home sooner than if you choose a shorter period. When you apply for a mortgage, lenders calculate the maximum regular payment you can afford. They then use this figure to determine the maximum mortgage amount they are willing to lend to you.

While a shorter amortization period results in higher regular payments, a longer amortization period reduces the amount of your regular principal and interest payment by spreading your payments out over a longer timeframe. As a result, you could qualify for a higher mortgage amount than you originally anticipated. Or you could qualify for your mortgage sooner than you had planned. Either way, you end up in your dream home sooner than you thought possible.

Again, this option is not for everyone. While a longer amortization period will appeal to many people because the regular mortgage payments can be comparable or even lower than paying rent, it does mean that you will pay more interest over the life of your mortgage.

Still, regardless of which amortization period you select when you originally apply for your mortgage, you do not have to stick with that period throughout the life of your mortgage. You can always choose to shorten your amortization and save on interest costs by making extra payments when you can or an annual lump-sum principal pre-payment. If making pre-payments (in the form of extra, larger or lump-sum payments) is an option you’d like to have, your mortgage professional can ensure the mortgage you end up with will not penalize you for making these types of payments.

It also makes good financial sense for you to re-evaluate your amortization strategy every time your mortgage comes up for renewal (at the end of each term of your mortgage, whether this is three, five, 10 years, etcetera). That way, as you advance in your career and earn a larger salary and/or commission or bonus, you can choose an accelerated payment option (making larger or more frequent payments) or simply increase the frequency of your regular payments (ie, paying your mortgage every week or two weeks as opposed to once per month). Both of these features will take years off your amortization period and save you a considerable amount of money on interest throughout the life of your mortgage.

For further inquiries as to how Dominion Lending Centres Griffin Financial Group can help assist you with your mortgage experience

Visit our websites:

www.davegriffin.ca or www.kawarthamortgage.com

Call us at 705-745-3522

Toll Free at 866-488-3522

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Put Away the Plastic, Use Cash

We live in a society of instant gratification. Unlike our parents or grandparents – who saved up for larger purchases – we are often tempted to splurge on bigger-ticket items simply because we have a debit card in hand when we head out “window shopping”.

And aside from overspending thanks to the advent of debit cards, consumers are also more likely to dip into overdraft, which ends up costing more thanks to fees and interest that banks charge whenever you spend more than you have in your account.

Basically, a debit card works like a cheque. The only difference is that every time you use it, you’re immediately taking money out of your account. That’s why when you overdraw it’s like bouncing a cheque – only worse because, unlike cheques, you probably don’t keep a record of every debit card purchase you make.

You may even make a bunch of small purchases before you realize you’ve spent more than you have. So before you pay for that coffee or lunch purchase with your debit card, make sure you have enough money in your account to cover it.

Revert to using cash for daily expenses

Cash controls spending, plain and simple. Using cash to pay for everyday purchases such as coffee, transit, lunch and magazines alerts you to the idea that you’re actually spending real money. You just don’t get the same cautionary sense when you haul out plastic, be it a debit or credit card.

There’s a distinct cognitive event that happens when you handle money – it’s called awareness. Over the counter goes the five dollar bill and back comes a loonie, a dime, two nickels and four pennies.

Did you just add up the change above to determine how much money you have left? Did you think about what that purchase could have been? You see, you are much more conscious of this imaginary purchase than if you had paid with plastic.

Now, add in the awareness of the bills left in your wallet and you become attuned to your temporary wealth, or lack thereof. At the end of the day, what encourages or cautions many consumers about spending is knowing where you stand from a financial perspective. That’s why cash can help control spending. Using cash to pay for everyday purchases alerts you to the idea that you’re actually spending real money.

By allotting yourself a weekly cash allowance for entertainment and everyday expenses – such as that daily morning coffee or weekly movie – you are building a budget around what you can spend on these purchases. And once the money in your wallet has been spent, you have to ensure you fight the urge to withdraw more cash or resort back to using your debit card.

Be realistic about what you typically spend on these items in a week. If you routinely eat out for lunch or stop at Tim Hortons for coffee, count that as well. If you think you’re spending too much on these items, you can then decide to find a less expensive alternative, such as brown-bagging your lunch or making your own coffee.

Let’s say, for instance, that you start the week off with $50 in your wallet and you began to spend it on your purchases. You will see $50 turn into $40, $40 turn into $25, $25 turn into $15 and so on. Every time you look into your wallet, you will see what’s left over from your original $50 and be aware of how quickly your money is being spent. This alone can make you think twice before making a purchase.

If you have any questions concerning budgeting, contact your Dominion Lending Centres Mortgage Professional at Griffin Financial Group.

For further inquiries as to how Dominion Lending Centres Griffin Financial Group can help assist you with preparing for your mortgage experience

Visit our websites:

www.davegriffin.ca or www.kawarthamortgage.com

Call us at 705-745-3522

Toll Free at 866-488-3522

Connect with us!

 

Leasing or Buying a Vehicle Impacts Your Debt Ratios

The question of whether it’s better to lease or buy a vehicle is a common dilemma. And do you buy or lease a new or used vehicle? The answer depends on the specifics of your situation.

It’s important to realize that many consumers overburden themselves with car leases or loans they simply can’t afford. While most of us require a vehicle to get to and from many destinations throughout the course of any given week, we don’t need a high-end vehicle to serve this purpose.

The key to remember when you’re looking to purchase a home and obtain a mortgage or refinance an existing mortgage is that, if you overspend on a vehicle, it affects your debt ratios and may restrict or negate your mortgage financing ability.

Leases and purchase loans are simply two different methods of automobile financing. One finances the use of a vehicle while the other finances the purchase of a vehicle. Each has its own benefits and drawbacks.

When making a lease-or-buy decision, you must, therefore, look at your financial abilities in terms of your debt ratios. And if you’re unsure about how leasing or purchasing a vehicle will affect your ratios, it’s best to speak to a Dominion Lending Centres Mortgage Professional prior to making your decision.

When you buy, you pay for the entire cost of a vehicle, regardless of how many kilometres you drive. You typically make a down payment, pay sales taxes in cash or roll them into your loan, and pay an interest rate determined by your loan company based on your credit history. Later, you may decide to sell or trade the vehicle for its depreciated resale value.

When you lease, you pay for only a portion of a vehicle’s cost, which is the part that you “use up” during the time you’re driving it. You have the option of not making a down payment, you pay sales tax only on your monthly payments, and

you pay a financial rate, called a money factor, which is similar to the interest on a loan. You may also be required to pay fees and a security deposit. At lease-end, you may either return the vehicle or purchase it for its depreciated resale value.

As an example, if you lease a $20,000 car that will have, say, an estimated resale value of $13,000 after 24 months, you pay for the $7,000 difference (this is called depreciation), plus finance charges and possible fees.

When you buy, you pay the entire $20,000, plus finance charges and possible fees. This is fundamentally why leasing offers significantly lower monthly payments than buying.

Lease payments are made up of two parts – a depreciation charge and a finance charge. The depreciation part of each monthly payment compensates the leasing company for the portion of the vehicle’s value that is lost during your lease. The finance part is interest on the money the lease company has tied up in the car while you’re driving it.

Loan payments also have two parts – a principal charge and a finance charge. The principal pays off the full vehicle purchase price, while the finance charge is loan interest. Since all vehicles depreciate in value by the same amount regardless of whether they’re leased or purchased, however, part of the principal charge of each loan payment can be considered as a depreciation charge. Just like with leasing, it’s money you never get back, even if you sell the vehicle in the future.

The remainder of each loan principal payment goes toward equity – or resale value – which is what remains of your car’s original value at the end of the loan after depreciation has taken its toll. The longer you own and drive a vehicle, the less equity you have.

With leasing, you may have the option of putting your monthly payment savings into more productive investments, such as your mortgage, an investment property or a vacation home, which will increase in value. In fact, many experts encourage this practice as one of the benefits of leasing.

For further inquiries as to how Dominion Lending Centres Griffin Financial Group can help assist you with your mortgage experience

Visit our websites:

www.davegriffin.ca or www.kawarthamortgage.com

Call us at 705-745-3522

Toll Free at 866-488-3522

Connect with us!

10 Questions Mortgage Borrowers Should Ask But Often Don’t

1. If I have mortgage default insurance do I also need mortgage life insurance?

• Yes. Mortgage life insurance is a life insurance policy on a homeowner, which will allow your family or dependents to pay off the mortgage on the home should something tragic happen to you. Mortgage default insurance is something lenders require you to purchase to cover their own assets if you have less than a 20% down payment. Mortgage life insurance is meant to protect the family of a homeowner and not the mortgage lender itself.

2. What steps can I take to maximize my mortgage payments and own my home sooner?

• There are many ways to pay down your mortgage sooner that could save you thousands of dollars in interest payments throughout the term of your mortgage. Most mortgage products, for instance, include prepayment privileges that enable you to pay up to 20% of the principal (the true value of your mortgage minus the interest payments) per calendar year. This will also help reduce your amortization period (the length of your mortgage). Another way to reduce the time it takes to pay off your mortgage involves changing the way you make your payments by opting for accelerated bi-weekly mortgage payments. Not to be confused with semi-monthly mortgage payments (24 payments per year), accelerated bi-weekly mortgage payments (26 payments per year) will not only pay your mortgage off quicker, but it’s guaranteed to save you a significant amount of money over the term of your mortgage. With accelerated bi-weekly mortgage payments, you’re making one additional monthly payment per year. In addition to increased payment options, most lenders offer the opportunity to make lump-sum payments on your mortgage (as much as 20% of the original borrowed amount each year). Please note, however, that some lenders will only let you make these lump-sum payments on the anniversary date of your mortgage while others will allow you to spread out the lump-sum payments to the maximum allowable yearly amount.

3. Can I make lump-sum or other prepayments on my mortgage, or will I be penalized?

• Most lenders enable lump-sum payments and increased mortgage payments to a maximum amount per year. But, since each lender and product is different, it’s important to check stipulations on prepayments prior to signing your mortgage papers. Most “no frills” mortgage products offering the lowest rates often do not allow for prepayments.

4. How do I ensure my credit score enables me to qualify for the best possible rate?

• There are several things you can do to ensure your credit remains in good standing. Following are five steps you can follow: 1) Pay down credit cards. The number one way to increase your credit score is to pay down your credit cards so they’re below 70% of your limits. Revolving credit like credit cards seems to have a more significant impact on credit scores than car loans, lines of credit, and so on. 2) Limit the use of credit cards. Racking up a large amount and then paying it off in monthly instalments can hurt your credit score. If there’s a balance at the end of the month, this affects your score – credit formulas don’t take into account the fact that you may have paid the balance off the next month. 3) Check credit limits. If your lender is slower at reporting monthly transactions, this can have a significant impact on how other lenders view your file. Ensure everything’s up to date as old bills that have been paid can come back to haunt you. Some financial institutions don’t even report your maximum limits. As such, the credit bureau is left to only use the balance that’s on hand. The problem is, if you consistently charge the same amount each month – say $1,000 to $1,500 – it may appear to the credit-scoring agencies that you’re regularly maxing out your cards. The best bet is to pay your balances down or off before your statement periods close. 4) Keep old cards. Older credit is better credit. If you stop using older credit cards, the issuers may stop updating your accounts. As such, the cards can lose their weight in the credit formula and, therefore, may not be as valuable – even though you have had the cards for a long time. Use these cards periodically and then pay them off. 5) Don’t let mistakes build up. Always dispute any mistakes or situations that may harm your score. If, for instance, a cell phone bill is incorrect and the company will not amend it, you can dispute this by making the credit bureau aware of the situation.

5. What amortization will work best for me?

• While the lending industry’s benchmark amortization period is 25 years, and this is the standard that is used by lenders when discussing mortgage offers, and usually the basis for mortgage calculators and payment tables, shorter or longer timeframes are available – to a maximum of 30 years. The main reason to opt for a shorter amortization period is that you’ll become mortgage-free sooner. And since you’re agreeing to pay off your mortgage in a shorter period of time, the interest you pay over the life of the mortgage is, therefore, greatly reduced. A shorter amortization also affords you the luxury of building up equity in your home sooner. Equity is the difference between any outstanding mortgage on your home and its market value. While it pays to opt for a shorter amortization period, other considerations must be made before selecting your amortization. Because you’re reducing the actual number of mortgage payments you make to pay off your mortgage, your regular payments will be higher. So if your income is irregular because you’re paid commission or if you’re buying a home for the first time and will be carrying a large mortgage, a shorter amortization period that increases your regular payment amount and ties up your cash flow may not be the best option for you.

6. What mortgage term is best for me?

• Selecting the mortgage term that’s right for you can be a challenging proposition for even the savviest of homebuyers, as terms typically range from six months up to 10 years. The first consideration when comparing various mortgage terms is to understand that a longer term generally means a higher corresponding interest rate. And, a shorter term generally means a lower corresponding interest rate. While this generalization may lead you to believe that a shorter term is always the preferred option, this isn’t always the case. Sometimes there are other factors – either in the financial markets or in your own life – that you’ll also have to take into consideration when selecting the length of your mortgage term. If paying your mortgage each month places you close to the financial edge of your comfort zone, you may want to opt for a longer mortgage term, such as five or 10 years, so that you can ensure that you’ll be able to afford your mortgage payments should interest rates increase. By the end of a five- or 10-year mortgage term, most buyers are in a better financial situation, have a lower outstanding principal balance and, should interest rates have risen throughout the course of your term, you’ll be able to afford higher mortgage payments.

7. Is my mortgage portable?

• Fixed-rate products usually have a portability option. Lenders often use a “blended” system where your current mortgage rate stays the same on the mortgage amount ported over to the new property and the new balance is calculated using the current rate. With variable-rate mortgages, however, porting is usually not available. This means that when breaking your existing mortgage, a three-month interest penalty will be charged. This charge may or may not be reimbursed with your new mortgage. While porting typically ensures no penalty will be charged when you sell your existing property and buy a new one, it’s best to check with your mortgage broker for specific conditions. Some lenders allow you to port your mortgage, but your sale and purchase have to happen on the same day, while others offer extended periods.

8. If I want to move before my mortgage term is up, what are my options?

• The answer to this question often depends on your specific lender and what type of mortgage you have. While fixed mortgages are often portable, variable are not. Some lenders allow you to port your mortgage, but your sale and purchase have to happen on the same day, while others offer extended periods. As long as there’s not too much time between the sale of your existing home and the purchase of the new home, as a rule of thumb most lenders will allow you to port the mortgage. In other words, you keep your existing mortgage and add the extra funds you need to buy the new house on top. The interest rate is a blend between your existing mortgage rate and the current rate at the time you require the extra money.

9. What steps can I take to help ensure I don’t become a victim of title or mortgage fraud?

• The best way to prevent fraud is to be aware of how it’s committed. Following are some red flags for mortgage fraud: someone offers you money to use your name and credit information to obtain a mortgage; you’re encouraged to include false information on a mortgage application; you’re asked to leave signature lines or other important areas of your mortgage application blank; the seller or investment advisor discourages you from seeing or inspecting the property you will be purchasing; or the seller or developer rebates you money on closing, and you don’t disclose this to your lending institution. Sadly, the only red flag for title fraud occurs when your mortgage mysteriously goes into default and the lender begins foreclosure proceedings. Even worse, as the homeowner, you’re the one hurt by title fraud, rather than the lender, as is often the case with mortgage fraud. Unlike with mortgage fraud, during title fraud, you haven’t been approached or offered anything – this is a form of identity theft. Following are ways you can protect yourself from title fraud: always view the property you’re purchasing in person; check listings in the community where the property is located – compare features, size and location to establish if the asking price seems reasonable; make sure your representative is a licensed real estate agent; beware of a real estate agent or mortgage broker who has a financial interest in the transaction; ask for a copy of the land title or go to a registry office and request a historical title search; in the offer to purchase, include the option to have the property appraised by a designated or accredited appraiser; insist on a home inspection to guard against buying a home that has been cosmetically renovated or formerly used as a grow house or meth lab; ask to see receipts for recent renovations; when you make a deposit, ensure your money is protected by being held “in trust”; and consider the purchase of title insurance

10. How do I ensure I get the best mortgage product and rate upon renewal at the end of my term?

• The best way to ensure you receive the best mortgage product and rate at renewal is to enlist your mortgage broker once again to get the lenders competing for your business just like they did when you negotiated your last mortgage. A lot can change over a single mortgage term, and you can miss out on a lot of savings and options if you simply sign a renewal with your existing lender without consulting your mortgage broker.

For further inquiries as to how Dominion Lending Centres Griffin Financial Group can help assist you with your borrowing experience

Visit our websites:

www.davegriffin.ca or www.kawarthamortgage.com

Call us at 705-745-3522

Toll Free at 866-488-3522

Connect with us!

Getting a Mortgage Pre-Approval

If you are looking for a new home, be sure you are pre-approved. With a mortgage pre-approval, a licensed mortgage professional can do a more complete verification prior to sending you shopping for a home, and with that done, the dollar figure you are going shopping with is actually what you can spend.

The Dominion Lending Centres Griffin Financial Group mortgage professional that you work with to get pre-approved will let you know for certain what you can afford based on lender and insurer criteria, and what your payments on a specific mortgage will be.

Licensed mortgage professionals can lock-in an interest rate for you for anywhere from 60 – 120 days while you shop for your perfect home. By locking in an interest rate, you are guaranteed to get a mortgage for at least that rate or better. If interest rates drop, your locked-in rate will drop as well. However, if the interest rates go up, your locked-in interest rate will not, ensuring you get the best rate throughout the mortgage pre-approval process.

In order to get pre-approved for a mortgage, a mortgage professional requires a short list of information that will allow them to determine your buying power. A mortgage professional will explain to you the benefits of shorter or longer mortgage terms, the latest programs available, which mortgage products they believe will most likely meet your needs the best, plus they will review all of the other costs involved with purchasing a home.

Getting pre-approved for a mortgage is something every potential home buyer should do before going shopping for a new home. A pre-approval will give you the confidence of knowing that financing is available, and it can put you in a very positive negotiation position against other home buyers who aren’t pre-approved.

For further inquiries as to how Dominion Lending Centres Griffin Financial Group can help assist you with your pre-approval

Visit our websites:

www.davegriffin.ca or www.kawarthamortgage.com

Call us at 705-745-3522

Toll Free at 866-488-3522

Connect with us!