Mortgages: 10 tips to save money

For many people in Quebec, a mortgage represents the most significant debt that they will deal with across their lives. It is thus unsurprising that many are looking for a way to save on their mortgage costs!

But while it can be difficult to reduce the amount of the mortgage you will have to pay at the outset, there are a number of tips and tricks you can use to reduce the amount of interest that will accrue. Here are just a few:

1. Offer a higher down payment to reduce your mortgage costs

The first step you can try to take to reduce the cost of your mortgage is to increase the amount of your down payment. This must of course fall within your financial limits. However, be aware that the higher your down payment, the lower your loan and interest will be. Food for thought!

2. Shop around for your mortgage to get the best deal

Whatever down payment you provide, one of the best ways to save on your mortgage is to shop around with multiple lenders. This also applies to your mortgage renewal period.

So, get out your negotiating skills and request quotes from various financial institutions. If you have a good credit rating and history, you will be in a particularly good position to negotiate.

Do you have limited negotiating skills? Doing business with a mortgage broker can make your life much easier. With their knowledge and with many contacts at the banks, they will be able to find the best mortgage deals for you.

3. Choose a shorter depreciation period

The faster you repay your mortgage, the less interest you will have to pay on your loan. This will save you a significant amount in accumulated fees.

You will first need to assess the situation according to your means, as shorter depreciation means higher payments. Nonetheless, reducing your repayment period by just a few years can save you thousands of dollars. If you can afford it, it can be a good way to save in the long run.

So, try opting for a 20-year mortgage instead of a 25-year one. Savings will be even greater if you have the option of taking out a loan for 15 years or less.

4. Up the frequency of your payments

Rather than settling for monthly repayments, you could opt for accelerated bi-weekly or weekly ones. By increasing the frequency of your payments, you will be able to repay a larger proportion of your mortgage each year. As a result, you will accumulate less interest than if you only make one payment per month.

5. Keep the same payment amount when the interest rate drops

You've renewed your mortgage and your lender has offered you a lower interest rate? This is great news! But instead of taking advantage of it to reduce the cost of your payments, you may choose to continue paying the same amount. In doing so, your rate of repayments will be higher. You'll finish repaying faster and save a lot of money.

6. Increase the sum of payments

If your budget allows, you could choose to increase the sum of regular payments. This will not save you money in the short term, as your payments will be higher, but you will save, once again, on many long-term interest fees.

A simple increase of a few dollars on your payments can make a big difference at the end of your repayment period. For example, if your biweekly payment is $527, you may decide to round it up to $550. This $23 difference doesn't drastically affect your wallet, but it does allow you to pay back a few hundred dollars more per year.

7. Make lump sum payments

Are you getting an unexpected tax refund? Or perhaps a bonus at work? You may decide to reinvest these amounts into your mortgage by making a lump sum payment.

Check the terms of your contract before making such a decision. Your financial institution may impose a limit on lump sum repayments. You will have to consider this to avoid penalties.

8. Avoid double payments on mortgage insurance

Mortgage loan insurance serves as protection for your lender. It is required if your down payment is less than 20% of the purchase price of the property you want to buy.

If, after a while, you decide to change your financial institution, your new lender may also require you to pay an insurance premium. You should explore alternatives that could save you from having to pay this insurance premium again.

You could, for example, ask your previous lender for the number of the insurance certificate you have already obtained for cases where the amount and the depreciation period of your loan do not increase. You could then avoid having to pay a new insurance premium.

Find out more about the portability options for mortgage insurance, such as the one provided by CMHC.

9. Limit penalty fees

Whether you want to pay off your mortgage faster or terminate your contract with your lender, find out what penalty fees might apply if you decide to proceed with these steps. Check if there is a possibility to avoid or limit these penalty fees.

10. Plan ahead

Whether you are taking out your first mortgage or renewing an existing one, don't leave it to the last minute. By negotiating the terms of your contract in advance, you will have a greater chance of finding both the best terms and the best mortgage rate.

Most financial institutions allow you arrange your mortgage 3 months or more in advance. Some even allow you to take advantage of the most advantageous rate between the one you had previously and the one in effect at the time you take out your loan. For this reason, it is worth planning ahead.

Cover image : Freepik.com

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