How to save money monthly on your mortgage

One advantage of variable-rate mortgages over fixed-rate is that your payments can go down as interest rates fall. If you have had a variable-rate mortgage for some time, it is likely your payments have reduced considerably recently. With rates this low, mortgage advisors say, this is a good time to look at ways to pay off your mortgage more quickly.

“We recommend [homeowners] keep making the payments they were making,” says Rob Regan-Pollock, senior consultant at Invis mortgage brokerage in Vancouver. “That puts more to principal with every payment and starts to compound in their favour.”

On a variable rate mortgage, Mr. Regan-Pollock says, payments should be increased as income and circumstances change. Again, all the money paid above the minimum payment will go straight to reducing principal, meaning the loan will be paid off more quickly.

For example, on a $300,000 25-year amortization with a five-year fixed-rate 3.45% mortgage with a monthly payment of $1,496.23, “Ten years go by, and, what started as a first-time homebuyer who had to count their pennies for closing costs, is now someone on their third home . their incomes are higher and it’s a real priority for them to pay down their place,” says Kim Gibbons, a broker with Mortgage Intelligence in Toronto. “Payments for one client went from $1,600 to $800 [on their variable mortgage]. They maintained the $1,600 payment and the difference of $800 went directly on to principal.”

Both advisors say that even those with fixed-term deals should speak to a mortgage professional to see if it is worth paying a penalty to break the current mortgage to move to a lower interest rate.

“If you have a mortgage, for example, that is coming due in the next year and a half and you have a rate of 5.2%,” Ms. Gibbons claims, “I’ll show you how quickly you can recapture any penalty you have to pay with rates now of 3.49% on a fixed and 2.2% on a variable.”

When first taking out a mortgage, Mr. Regan-Pollock suggests checking penalties or conditions regarding making changes or over-payments. Many fixed-rate mortgages allow one month’s extra payment, or a cap of 10% of the total, on an annual basis.

“Certain lenders will allow the contract to be opened up prior to maturity,” he says. Buyers should “ask if they can ‘extend and blend.’ Say they were at 5.25% for five years and they’re three years into it, we could approach the lender and say ‘Your five-year rate is currently 3.5%, this client has two years left at 5.25% . Can we blend, without penalty, and extend to a new five-year term at say at 4.25%?'”

The terms and conditions of a mortgage must be understood; as well, it is wise to ensure you have the flexibility you need for your stage of family life and career.

“We have set a lot of clients up on 30-year amortizations so they have a low baseline payment that gives them lots of flexibility for lower payments,” says Mr. Regan-Pollock. “The key is knowing the client’s needs, does the product have a 15% to 20% increase in payments as their career expands and their incomes increase? We have annual reviews where we check in with customers and consider an increase to payments. It doesn’t change the contract; they can still drop their payments back down if anything unforeseen happens, but they can voluntarily increase their payments as their income level increases over time.”


– With a base scenario of a $300,000, 25-year amortization, five-year fixed-rate mortgage at 3.45% and a monthly payment of $1,496.23. If you:

1. Pay $100 extra a month Interest saved: $15,744 Paid off 2.3 years early

2. Pay $300 extra a month Interest saved: $38,784 Paid off 5.9 years early

3. Double up on payments Interest saved: $94,175 Paid off 15.1 years early

4. Make a lump sum payment each year of $45,000 (15% of principal) Interest saved: $145,585 Paid off 19.9 years early

5. Both 3 and 4; Double up payments and pay 15% of principal per year Interest saved: $131,570 Paid off 21.3 years early.

– With a base scenario of a $300,000, 25-year amortization, variable mortgage at prime -.70 (2.30%) and a monthly payment of $1,314.20. If you:

1. Pay $100 extra a month Interest saved: $9,408 Paid off 2.3 years early

2. Pay $300 extra a month Interest saved: $23,468 Paid off 2.3 years early

3. Double up on payments Interest saved: $55,597 Paid off 14.3 years early

4. Make a lump sum payment each year of $45,000 (15% of principal) Interest saved: $78,147 Paid off 19.9 years early

5. Lump sum + double up Interest saved: $82,322 Paid off 22.9 years early

© Copyright (c) National Post

Calgary MLS sales rise in August from year ago Both condos and single-family home increases

MLS sales in Calgary in August were up compared with a year ago.

Statistics released by the Calgary Real Estate Board Thursday, show single-family sales during the month hit 1,106, up 27.9 per cent from 865 in August 2010. The average sale price last month was $453,969, an increase of 1.8 per cent from $445,814 a year ago. The median price also rose by 1.8 per cent to $402,250 in August from $395,000 last year.

In the condo market, there were 468 sales for an average price of $285,487 in August, up 29.3 per cent from 362 sales last year but the average was down 0.3 per cent from $286,373 in August 2010. The median price in August was $255,000, down 1.9 per cent from $260,000 a year ago.

“We are seeing a lift in sales at boths ends of the market,” said Sano Stante, president of CREB. “Improving economic conditions coupled with affordability and price stability has given Calgary a boost in buyers for upper-end homes and entry-level condos.

“With Calgary’s energy sector slated to grow, it is expected to lift the city’s employment, income and in-migration, and in turn help contribute to growth in the resale market. We expect price growth to improve as we approach the end of 2011 and move into 2012.”

Many Calgarians are watching the local real estate market closely these days to determine where it’s headed in the near future for both prospective buyers and sellers.

Alexandria (Ali) Cohen is one of them. She owns a home in Tuxedo, but is considering listing it for sale in the near future, and also looking to purchaser a bigger home.

“I’m a little conscious that the market’s low. However, the interest rates are holding and that should be relatively good for the near term for sellers and buyers. So that’s a good thing,” said Cohen.

With sales up in August from a year ago, that could be a boost for real estate locally.

“It should be but typically the summer months are definitely more active than the winter months. So if I don’t list in September, I’m not going to list until next year sort of thing,” added Cohen, who will be keeping a close eye on the market in the coming weeks.

Richard Cho, senior market analyst in Calgary for Canada Mortgage and Housing Corp., said labour market conditions have improved from the previous year which is contributing to the gain in sales in Calgary.

“The economy in 2011 has supported job creation in Calgary, something we did not see last year.The rise in sales, however, may also look a bit pronounced as we are also comparing against a period in 2010 when activity began to slow down,” he said.

“The housing market in Calgary has generally favoured the buyer so far this year. The supply in the resale market has kept price growth fairly modest . . .We expect activity in the resale market to gradually improve in the months ahead. Aside from some recent financial uncertainty, there are still many factors that will help support the Calgary housing sector.”

© Copyright (c) The Calgary Herald