When it comes to mortgages and renovations it is important that you have your financing in place before you take the sledge hammer out of the garage! Lenders do not like coming into play half way through a renovation. Planning is essential to ensure you will have enough funds to cover the renovation costs.

Did you know there are mortgage products available that may help you with the costs of renovations above the 80% loan-to-value refinancing rule. The Refinance Plus Improvements Mortgage is a great way to incorporate the costs of improvements into your mortgage.

Here’s a list of typical Refinance Plus Improvements Guidelines:

1. The improvement funds above the 80% loan-to-value mark for the current as-is market value of your home will be held back by the lender until your renovations are complete.

2. Lending value is based on an Appraisal that states the As-Is Complete Value

3. You will need quotes upfront for the proposed improvements

4. You may need additional funds to pay deposits to contractors

5. Do not start demolitions before an Appraisal is done

6. Funds available are typically limited to 20% of the current appraised value up to $40,000 (ask a mortgage broker about other mortgage options if you require more funds)

7. Renovations typically will need to be complete within 90 days from the date the mortgage completes

8. You must meet the lenders credit and debt servicing requirements

Stay on Budget and on Time by Following these 5 Simple Steps:

1. Finalize the design before you start!

2. Contact Suppliers to make sure that they have the materials you have chosen in stock or that they can be delivered quickly

3. Obtain quotes from 2 or more reputable contractors

4. Apply and secure any permits that are required before your mortgage completion date

5. Give your contractor a deadline to ensure you don’t go over the allotted time to complete the improvements

When it comes to mortgages and renovations it is important that you have your financing in place before you take the sledge hammer out of the garage! Lenders do not like coming into play half way through a renovation. Planning is essential to ensure you will have enough funds to cover the renovation costs.

Did you know there are mortgage products available that may help you with the costs of renovations above the 80% loan-to-value refinancing rule. The Refinance Plus Improvements Mortgage is a great way to incorporate the costs of improvements into your mortgage.

Here’s a list of typical Refinance Plus Improvements Guidelines:

1. The improvement funds above the 80% loan-to-value mark for the current as-is market value of your home will be held back by the lender until your renovations are complete.

2. Lending value is based on an Appraisal that states the As-Is Complete Value

3. You will need quotes upfront for the proposed improvements

4. You may need additional funds to pay deposits to contractors

5. Do not start demolitions before an Appraisal is done

6. Funds available are typically limited to 20% of the current appraised value up to $40,000 (ask a mortgage broker about other mortgage options if you require more funds)

7. Renovations typically will need to be complete within 90 days from the date the mortgage completes

8. You must meet the lenders credit and debt servicing requirements

Stay on Budget and on Time by Following these 5 Simple Steps:

1. Finalize the design before you start!

2. Contact Suppliers to make sure that they have the materials you have chosen in stock or that they can be delivered quickly

3. Obtain quotes from 2 or more reputable contractors

4. Apply and secure any permits that are required before your mortgage completion date

5. Give your contractor a deadline to ensure you don’t go over the allotted time to complete the improvements

Start the renovation planning by contacting your mortgage professional first!

Shari Letsos
Mortgage Professional
Cell: 604-723-7721
Sletsos@dominionlending.ca
Dominion Lending Centres Mountain View
Website: www.ShariLetsos.ca

When it comes to mortgages and renovations it is important that you have your financing in place before you take the sledge hammer out of the garage! Lenders do not like coming into play half way through a renovation. Planning is essential to ensure you will have enough funds to cover the renovation costs.

Did you know there are mortgage products available that may help you with the costs of renovations above the 80% loan-to-value refinancing rule. The Refinance Plus Improvements Mortgage is a great way to incorporate the costs of improvements into your mortgage.

Here’s a list of typical Refinance Plus Improvements Guidelines:

1. The improvement funds above the 80% loan-to-value mark for the current as-is market value of your home will be held back by the lender until your renovations are complete.

2. Lending value is based on an Appraisal that states the As-Is Complete Value

3. You will need quotes upfront for the proposed improvements

4. You may need additional funds to pay deposits to contractors

5. Do not start demolitions before an Appraisal is done

6. Funds available are typically limited to 20% of the current appraised value up to $40,000 (ask a mortgage broker about other mortgage options if you require more funds)

7. Renovations typically will need to be complete within 90 days from the date the mortgage completes

8. You must meet the lenders credit and debt servicing requirements

Stay on Budget and on Time by Following these 5 Simple Steps:

1. Finalize the design before you start!

2. Contact Suppliers to make sure that they have the materials you have chosen in stock or that they can be delivered quickly

3. Obtain quotes from 2 or more reputable contractors

4. Apply and secure any permits that are required before your mortgage completion date

5. Give your contractor a deadline to ensure you don’t go over the allotted time to complete the improvements

When it comes to mortgages and renovations it is important that you have your financing in place before you take the sledge hammer out of the garage! Lenders do not like coming into play half way through a renovation. Planning is essential to ensure you will have enough funds to cover the renovation costs.

Did you know there are mortgage products available that may help you with the costs of renovations above the 80% loan-to-value refinancing rule. The Refinance Plus Improvements Mortgage is a great way to incorporate the costs of improvements into your mortgage.

Here’s a list of typical Refinance Plus Improvements Guidelines:

1. The improvement funds above the 80% loan-to-value mark for the current as-is market value of your home will be held back by the lender until your renovations are complete.

2. Lending value is based on an Appraisal that states the As-Is Complete Value

3. You will need quotes upfront for the proposed improvements

4. You may need additional funds to pay deposits to contractors

5. Do not start demolitions before an Appraisal is done

6. Funds available are typically limited to 20% of the current appraised value up to $40,000 (ask a mortgage broker about other mortgage options if you require more funds)

7. Renovations typically will need to be complete within 90 days from the date the mortgage completes

8. You must meet the lenders credit and debt servicing requirements

Stay on Budget and on Time by Following these 5 Simple Steps:

1. Finalize the design before you start!

2. Contact Suppliers to make sure that they have the materials you have chosen in stock or that they can be delivered quickly

3. Obtain quotes from 2 or more reputable contractors

4. Apply and secure any permits that are required before your mortgage completion date

5. Give your contractor a deadline to ensure you don’t go over the allotted time to complete the improvements

Start the renovation planning by contacting your mortgage professional first!

Shari Letsos
Mortgage Professional
Cell: 604-723-7721
Sletsos@dominionlending.ca
Dominion Lending Centres Mountain View
Website: www.ShariLetsos.ca

While it’s certainly easy to be intimidated by the prices that you might see as you browse MLS into the wee hours of the night, mortgage interest rates are still at a historical low.  If you’re looking at purchasing for the first time, you’re thinking, “What does that mean?!”

With rates as low as they are, the cost of borrowing associated with your mortgage is lower than ever before.  You also need to look at other fees that can be tied to different mortgage products.  For example, some mortgages don’t allow for additional or increased payments, while others allow you to pay down your principal mortgage amount by up to an additional 20% per year, saving you money over the lifetime of your mortgage. It’s important to recognize and understand these options and fees, and that is where a Dominion Lending Centres Mortgage Broker comes in.  Brokers and their agents are experts in the products that they offer and will work to save you the most money.

Don’t worry!  A Broker can also help you take advantage of low interest rates as a homeowner, too!  It could be the right time to look at your other financials and consider consolidating other outside debts to take advantage of the savings that could be available to you.  It isn’t hard to see the savings between a balance owed on a credit card at 19% or the balance owing on your car at 6.25% and consolidating one (or both!) with your mortgage balance at much lower interest rate.  A broker can look at your current mortgage terms and timelines and can help you save a considerable amount of money each year!

A Mortgage Broker’s service doesn’t stop there.  Since the demand for new homes is so high right now, a Mortgage Broker will also help both first-timers and home-owners peeking around the markets with a pre-approval before you start considering making an offer on a new home. This means that you can confidently make an offer on the home that you love without making a condition on financing.  In a busy market, where purchases often end in bidding wars, having your financing in line could make your offer stand out against the rest.

Since properties are being scooped up like hotcakes, homeowners can also take advantage of selling their homes to downsize and save for retirement, or vacations, or spoiling their grandkids!

Now if you’d rather “love it” than “list it”, you can benefit from today’s high demand, too!  If you have been thinking about adding that basement bathroom, or are in need of upgrading your furnace and air conditioning units, a Broker can help you take advantage of the equity that you have gained in your home since you bought it.  In the last year, the demand for homes has soared, which means that your home could be worth a good chunk more than you might think.  Regardless of if your mortgage is up for renewal or not, a Mortgage Broker can help you make sense of the mortgage that you’re in, and look at payout options that could work in your favour.  And a mortgage evaluation will always be free with a licensed Broker.

Today’s market has a lot of characteristics that can work in your favour, but can also throw a little wrench in your plans.  Always make sure to sit down with a licensed, local Dominion Lending Centres’ Broker to make sure you’re armed with the knowledge that you need to get the most for your money!

Get pre-approved today!

Shari Letsos
Mortgage Professional
Cell: 604-723-7721
Sletsos@dominionlending.ca
Dominion Lending Centres Mountain View
Website: www.ShariLetsos.ca

While it’s certainly easy to be intimidated by the prices that you might see as you browse MLS into the wee hours of the night, mortgage interest rates are still at a historical low.  If you’re looking at purchasing for the first time, you’re thinking, “What does that mean?!”

With rates as low as they are, the cost of borrowing associated with your mortgage is lower than ever before.  You also need to look at other fees that can be tied to different mortgage products.  For example, some mortgages don’t allow for additional or increased payments, while others allow you to pay down your principal mortgage amount by up to an additional 20% per year, saving you money over the lifetime of your mortgage. It’s important to recognize and understand these options and fees, and that is where a Dominion Lending Centres Mortgage Broker comes in.  Brokers and their agents are experts in the products that they offer and will work to save you the most money.

Don’t worry!  A Broker can also help you take advantage of low interest rates as a homeowner, too!  It could be the right time to look at your other financials and consider consolidating other outside debts to take advantage of the savings that could be available to you.  It isn’t hard to see the savings between a balance owed on a credit card at 19% or the balance owing on your car at 6.25% and consolidating one (or both!) with your mortgage balance at much lower interest rate.  A broker can look at your current mortgage terms and timelines and can help you save a considerable amount of money each year!

A Mortgage Broker’s service doesn’t stop there.  Since the demand for new homes is so high right now, a Mortgage Broker will also help both first-timers and home-owners peeking around the markets with a pre-approval before you start considering making an offer on a new home. This means that you can confidently make an offer on the home that you love without making a condition on financing.  In a busy market, where purchases often end in bidding wars, having your financing in line could make your offer stand out against the rest.

Since properties are being scooped up like hotcakes, homeowners can also take advantage of selling their homes to downsize and save for retirement, or vacations, or spoiling their grandkids!

Now if you’d rather “love it” than “list it”, you can benefit from today’s high demand, too!  If you have been thinking about adding that basement bathroom, or are in need of upgrading your furnace and air conditioning units, a Broker can help you take advantage of the equity that you have gained in your home since you bought it.  In the last year, the demand for homes has soared, which means that your home could be worth a good chunk more than you might think.  Regardless of if your mortgage is up for renewal or not, a Mortgage Broker can help you make sense of the mortgage that you’re in, and look at payout options that could work in your favour.  And a mortgage evaluation will always be free with a licensed Broker.

Today’s market has a lot of characteristics that can work in your favour, but can also throw a little wrench in your plans.  Always make sure to sit down with a licensed, local Dominion Lending Centres’ Broker to make sure you’re armed with the knowledge that you need to get the most for your money!

Get pre-approved today!

Shari Letsos
Mortgage Professional
Cell: 604-723-7721
Sletsos@dominionlending.ca
Dominion Lending Centres Mountain View
Website: www.ShariLetsos.ca

The BC HOME Partnership Program was created for first time home buyers who have good credit and good income but do not meet the requirements for a minimum 5 percent down payment.  With at least 2.5% down payment the BC Home Partnership Program will allow you to purchase your home sooner than waiting to save the full 5% minimum down payment.

As a home buyer you can take full advantage of the program by paying back the loan amount within the first 5 years during the interest free period.  Between the 6-10 year time frame the interest rate is preset to 3.2% (current Prime rate of 2.7% plus .5%).

First step —get a pre-approval from your Dominion Lending Centres mortgage broker.

If you meet the eligibility requirements and have 2.5% for a down payment is the BC HOME Partnership Program right for you? 

The answer is “Yes”. Here’s why.

For example, consider a purchase price of $400,000 with total 5% down of $20,000.

The 2.5% loan portion from the BC HOME Partnership Program is interest and payment free for the first 5 years.  Then in year 6 payments based on 3.2% and 20 year amortization would be payable at $56 per month. In year 11-15 the rate would be reset based on the Prime lending rate plus .5% at the time.

For those home buyers with at least 5% down payment of their own funds is the BC HOME Partnership Program right for you?

The answer is “Yes”. Here’s Why.

For example, consider a purchase price of $400,000 with total 5% down of $20,000 and no money from the BC HOME Partnership Program.

The difference in using 5% of your own money versus 2.5% of your own money and 5% from the BC HOME Partnership Program will cost you $950 more in the mortgage insurance premium (rolled into your mortgage) and $2 per month more for your mortgage payment.

If you prefer to keep some of your down payment funds and take advantage of the BC HOME Partnership Program, after 5 years if you have not paid off the BC HOME Partnership loan you would have that additional payment of $56 per month. The overall cost of the mortgage and loan payments over the life of the mortgage would result in $1,080 more in interest by taking advantage of the program instead of using all of your own funds for down payment.

Note – the rates used for the first mortgage and the loan for down payment have been kept the same for this example for comparison only.  Rates are subject to change at the end of each term.

For those home buyers with 10% down payment of their own funds is the BC HOME Partnership Program right for you?

The answer is “Yes”. Here’s Why.

Consider a purchase price of $400,000 with total 10% down of $40,000 (5% from own resources and 5% from the BC Home Partnership Program).

The difference in using 5% of your own money and 5% from the BC Home Buyer Program versus 10% of your own money is $720 less in the insurance premium (as you have a larger down payment) and $148 per month less for your mortgage payment.  After 5 years if you have not paid off the BC HOME Partnership loan you would have that additional payment of $112 per month.  If you continue with the loan throughout the life of the mortgage the net overall savings in interest is $5,000.

The BC HOME Partnership Program provides a cost effective options for first-time home-buyers.

Your down payment portion can come from savings including RRSP or gifted money from a family member.

Note – the rates used for the first mortgage and the loan for down payment have been kept the same for this example for comparison only.  Rates are subject to change at the end of each term.

These are only an example of the options for you as a first-time buyer and subject to income, credit and residency qualification. 

To ensure you are clear about the opportunity for your specific situation contact your mortgage broker.

For full details on the program visit the BC HOME Partnership Program website: https://www.bchousing.org/housing-assistance/bc-home-partnership

Get pre-approved today!

Shari Letsos
Mortgage Professional
Cell: 604-723-7721
Sletsos@dominionlending.ca
Dominion Lending Centres Mountain View
Website: www.ShariLetsos.ca

The BC HOME Partnership Program was created for first time home buyers who have good credit and good income but do not meet the requirements for a minimum 5 percent down payment.  With at least 2.5% down payment the BC Home Partnership Program will allow you to purchase your home sooner than waiting to save the full 5% minimum down payment.

As a home buyer you can take full advantage of the program by paying back the loan amount within the first 5 years during the interest free period.  Between the 6-10 year time frame the interest rate is preset to 3.2% (current Prime rate of 2.7% plus .5%).

First step —get a pre-approval from your Dominion Lending Centres mortgage broker.

If you meet the eligibility requirements and have 2.5% for a down payment is the BC HOME Partnership Program right for you? 

The answer is “Yes”. Here’s why.

For example, consider a purchase price of $400,000 with total 5% down of $20,000.

The 2.5% loan portion from the BC HOME Partnership Program is interest and payment free for the first 5 years.  Then in year 6 payments based on 3.2% and 20 year amortization would be payable at $56 per month. In year 11-15 the rate would be reset based on the Prime lending rate plus .5% at the time.

For those home buyers with at least 5% down payment of their own funds is the BC HOME Partnership Program right for you?

The answer is “Yes”. Here’s Why.

For example, consider a purchase price of $400,000 with total 5% down of $20,000 and no money from the BC HOME Partnership Program.

The difference in using 5% of your own money versus 2.5% of your own money and 5% from the BC HOME Partnership Program will cost you $950 more in the mortgage insurance premium (rolled into your mortgage) and $2 per month more for your mortgage payment.

If you prefer to keep some of your down payment funds and take advantage of the BC HOME Partnership Program, after 5 years if you have not paid off the BC HOME Partnership loan you would have that additional payment of $56 per month. The overall cost of the mortgage and loan payments over the life of the mortgage would result in $1,080 more in interest by taking advantage of the program instead of using all of your own funds for down payment.

Note – the rates used for the first mortgage and the loan for down payment have been kept the same for this example for comparison only.  Rates are subject to change at the end of each term.

For those home buyers with 10% down payment of their own funds is the BC HOME Partnership Program right for you?

The answer is “Yes”. Here’s Why.

Consider a purchase price of $400,000 with total 10% down of $40,000 (5% from own resources and 5% from the BC Home Partnership Program).

The difference in using 5% of your own money and 5% from the BC Home Buyer Program versus 10% of your own money is $720 less in the insurance premium (as you have a larger down payment) and $148 per month less for your mortgage payment.  After 5 years if you have not paid off the BC HOME Partnership loan you would have that additional payment of $112 per month.  If you continue with the loan throughout the life of the mortgage the net overall savings in interest is $5,000.

The BC HOME Partnership Program provides a cost effective options for first-time home-buyers.

Your down payment portion can come from savings including RRSP or gifted money from a family member.

Note – the rates used for the first mortgage and the loan for down payment have been kept the same for this example for comparison only.  Rates are subject to change at the end of each term.

These are only an example of the options for you as a first-time buyer and subject to income, credit and residency qualification. 

To ensure you are clear about the opportunity for your specific situation contact your mortgage broker.

For full details on the program visit the BC HOME Partnership Program website: https://www.bchousing.org/housing-assistance/bc-home-partnership

Get pre-approved today!

Shari Letsos
Mortgage Professional
Cell: 604-723-7721
Sletsos@dominionlending.ca
Dominion Lending Centres Mountain View
Website: www.ShariLetsos.ca

Your Credit Score that the lenders use, not to be mistaken by the Credit Risk Score you see when you check your own credit, is one aspect of determining your borrowing power. The better your score, the length of established credit and your payment history the better when it comes to mortgage financing.

Let’s assume that all parts of an application are equal (available down payment, income, monthly liability payments etc.) except for the Credit Score. Established credit in this case would be any credit report that has at least 2 accounts reporting with a limit of $2,000 for 2 Years.

Comparing the credit profiles of Jane and John both who make a gross annual income of $50,000 the following would apply:

First Gross Debt Service Ratio (GDS) is the combined shelter expenses (heat, property tax, half of condo fees & mortgage payment) in relation to the borrowers gross income. And Total Debt Service Ratio (TDS) is the GDS plus all other monthly debt liabilities in relation to the borrowers gross income.

Jane has a Credit Score over 680

• GDS allowed is 39%
• TDS allowed is 44%

John has a Credit Score between 600-679

• GDS allowed is 35%
• TDS allowed is 42%

Each year Jane may allocate $19,500 towards GDS and $22,000 towards TDS.

And each year John may allocate $17,500 towards GDS and $21,000 towards TDS.

Lets assume heat and property tax combined are $300/month. This means that Jane with her excellent credit can allocate $1,325 towards her mortgage payment and John can allocate $1,158 toward his mortgage payment.

Using the current Benchmark Qualifying Rate of 4.64% to qualify Jane may qualify for a mortgage of $236,066 and John may qualify for a mortgage of $206,313, a difference of$29,735.

As you can see there is quite the difference in mortgage amounts allowed under each credit rating. If you’re thinking of buying it’s best to consult a Dominion Lending Centres mortgage broker who will check your credit, help you determine your maximum mortgage amounts and if necessary help you make credit decisions that may improve your credit score and buying power.

Your Credit Score that the lenders use, not to be mistaken by the Credit Risk Score you see when you check your own credit, is one aspect of determining your borrowing power. The better your score, the length of established credit and your payment history the better when it comes to mortgage financing.

Let’s assume that all parts of an application are equal (available down payment, income, monthly liability payments etc.) except for the Credit Score. Established credit in this case would be any credit report that has at least 2 accounts reporting with a limit of $2,000 for 2 Years.

Comparing the credit profiles of Jane and John both who make a gross annual income of $50,000 the following would apply:

First Gross Debt Service Ratio (GDS) is the combined shelter expenses (heat, property tax, half of condo fees & mortgage payment) in relation to the borrowers gross income. And Total Debt Service Ratio (TDS) is the GDS plus all other monthly debt liabilities in relation to the borrowers gross income.

Jane has a Credit Score over 680

• GDS allowed is 39%
• TDS allowed is 44%

John has a Credit Score between 600-679

• GDS allowed is 35%
• TDS allowed is 42%

Each year Jane may allocate $19,500 towards GDS and $22,000 towards TDS.

And each year John may allocate $17,500 towards GDS and $21,000 towards TDS.

Lets assume heat and property tax combined are $300/month. This means that Jane with her excellent credit can allocate $1,325 towards her mortgage payment and John can allocate $1,158 toward his mortgage payment.

Using the current Benchmark Qualifying Rate of 4.64% to qualify Jane may qualify for a mortgage of $236,066 and John may qualify for a mortgage of $206,313, a difference of$29,735.

As you can see there is quite the difference in mortgage amounts allowed under each credit rating. If you’re thinking of buying it’s best to consult a Dominion Lending Centres mortgage broker who will check your credit, help you determine your maximum mortgage amounts and if necessary help you make credit decisions that may improve your credit score and buying power.

When signing your mortgage commitment letter you will have to choose your payment frequency. If your goal is to re-pay your mortgage as quickly as possible, then you need to understand how different payment options will affect your repayment schedule.

So what are your options?

In general, most lenders will offer the borrower the option to decide which repayment schedule fits best with their lifestyle. The options include monthly, semi-monthly, bi-weekly, accelerated bi-weekly, weekly and accelerated weekly payments. Let’s use some simple math to determine which payment frequency will assist you in paying back your mortgage in the shortest time possible.

For the purposes of this exercise and to keep things simple, let’s use $100,000 as our mortgage amount. We’ll use a 5 year fixed rate at 2.54% with a 25 year amortization period and interest being compounded semi-annually.

As you can see from the table above, choosing to pay your mortgage more frequently doesn’t result in reducing your amortization schedule. The key to reducing your amortization is to make sure you choose an accelerated re-payment schedule.

We are going to focus on Accelerated bi-weekly vs. bi-weekly payments but the same principle can be applied to accelerated weekly payments as well.

Okay, we’ve just determined that accelerating your mortgage payments will reduce your amortization and the interest you pay. How does accelerated bi-weekly vs bi-weekly result in more principle being repaid?

It’s important to think of your payments as a stream of income for the mortgage lender. Mortgage payments are comprised of principal and interest payments. The interest is calculated based on your outstanding principal balance, meaning once the interest has been paid, the remainder of your payment is used towards paying down your principal balance.

By choosing an accelerated repayment schedule, the monthly payment is divided by 2 (bi-weekly) or by 4 (weekly). There are 52 weeks in a calendar year so if you make 26 bi-weekly payments, you are in effect paying your Lender the equivalent of 13 months of payments per year compared to 12 months payments with all non-accelerated repayment schedules.

This accelerated repayment of principal is what shortens your amortization.

13 monthly payments ÷ 26 = accelerated bi-weekly payment

Example: ($449.96 per month x 13 months) ÷ 26 = $224.98 accelerated bi-weekly payment

With a non-accelerated or regular payment plan, the Lender takes 12 months worth of payments and divides this by either 26 or 52 to come up with the bi-weekly (or weekly) payment. With this adjusted payment, the Lender still receives a stream of income of 12 monthly payments per year, so there is no additional principal available to accelerate the amortization.

12 monthly payments ÷ 26 = regular bi-weekly payment

Example: ($449.96 per month x 12 months) ÷ 26 = $207.67 regular bi-weekly payment

So now you know why choosing accelerated bi-weekly vs. bi-weekly payments results in 1 extra month of payments per year, which in turn shortens your amortization.

I always recommend this to anyone who can afford the increase in payment but I understand this option isn’t right for everyone. Another option to help shorten your amortization is to increase your payments, meaning more principal paid.

When you’re choosing your next mortgage, make sure you discuss payment options with your Dominion Lending Centres mortgage professional that align with your overall goals for repaying your mortgage.

for any more information feel free to contact me.

Get pre-approved today!

Shari Letsos
Mortgage Professional
Cell: 604-723-7721
Sletsos@dominionlending.ca
Dominion Lending Centres Mountain View
Website: www.ShariLetsos.ca

When signing your mortgage commitment letter you will have to choose your payment frequency. If your goal is to re-pay your mortgage as quickly as possible, then you need to understand how different payment options will affect your repayment schedule.

So what are your options?

In general, most lenders will offer the borrower the option to decide which repayment schedule fits best with their lifestyle. The options include monthly, semi-monthly, bi-weekly, accelerated bi-weekly, weekly and accelerated weekly payments. Let’s use some simple math to determine which payment frequency will assist you in paying back your mortgage in the shortest time possible.

For the purposes of this exercise and to keep things simple, let’s use $100,000 as our mortgage amount. We’ll use a 5 year fixed rate at 2.54% with a 25 year amortization period and interest being compounded semi-annually.

As you can see from the table above, choosing to pay your mortgage more frequently doesn’t result in reducing your amortization schedule. The key to reducing your amortization is to make sure you choose an accelerated re-payment schedule.

We are going to focus on Accelerated bi-weekly vs. bi-weekly payments but the same principle can be applied to accelerated weekly payments as well.

Okay, we’ve just determined that accelerating your mortgage payments will reduce your amortization and the interest you pay. How does accelerated bi-weekly vs bi-weekly result in more principle being repaid?

It’s important to think of your payments as a stream of income for the mortgage lender. Mortgage payments are comprised of principal and interest payments. The interest is calculated based on your outstanding principal balance, meaning once the interest has been paid, the remainder of your payment is used towards paying down your principal balance.

By choosing an accelerated repayment schedule, the monthly payment is divided by 2 (bi-weekly) or by 4 (weekly). There are 52 weeks in a calendar year so if you make 26 bi-weekly payments, you are in effect paying your Lender the equivalent of 13 months of payments per year compared to 12 months payments with all non-accelerated repayment schedules.

This accelerated repayment of principal is what shortens your amortization.

13 monthly payments ÷ 26 = accelerated bi-weekly payment

Example: ($449.96 per month x 13 months) ÷ 26 = $224.98 accelerated bi-weekly payment

With a non-accelerated or regular payment plan, the Lender takes 12 months worth of payments and divides this by either 26 or 52 to come up with the bi-weekly (or weekly) payment. With this adjusted payment, the Lender still receives a stream of income of 12 monthly payments per year, so there is no additional principal available to accelerate the amortization.

12 monthly payments ÷ 26 = regular bi-weekly payment

Example: ($449.96 per month x 12 months) ÷ 26 = $207.67 regular bi-weekly payment

So now you know why choosing accelerated bi-weekly vs. bi-weekly payments results in 1 extra month of payments per year, which in turn shortens your amortization.

I always recommend this to anyone who can afford the increase in payment but I understand this option isn’t right for everyone. Another option to help shorten your amortization is to increase your payments, meaning more principal paid.

When you’re choosing your next mortgage, make sure you discuss payment options with your Dominion Lending Centres mortgage professional that align with your overall goals for repaying your mortgage.

for any more information feel free to contact me.

Get pre-approved today!

Shari Letsos
Mortgage Professional
Cell: 604-723-7721
Sletsos@dominionlending.ca
Dominion Lending Centres Mountain View
Website: www.ShariLetsos.ca