Mortgage Payment Frequency
Mortgage payments may not have to be made just once a month. For instance, you can shave years off your mortgage by changing from monthly to accelerated bi-weekly payments made every other week. For example, let’s say you have a $150,000 mortgage at 5.5% interest to be paid off over 25 years. By paying your mortgage using the accelerated bi-weekly payment feature, you will save over $22,000 in interest and pay off your mortgage 3 years and 6 months sooner!1 Since there are 52 weeks in a year, you’ll make 26 bi-weekly payments, or the equivalent of 13 monthly payments instead of 12 during this time, with the extra payment going directly to principal.1
Ask the mortgage lender if accelerated weekly, accelerated bi-weekly, or semi-monthly (twice a month) payments are available before committing to mortgage.
Prepayment Benefits
To reduce the amount of interest you’ll pay in the long run, mortgage prepayment privileges let you make extra payments towards the principal borrowed without paying a penalty. And flexible prepayment privileges may make it simpler to pay your mortgage off faster. However, all mortgage prepayment privileges are NOT created equal. Depending on your lender, you could be charged for paying more than regular payments; be limited as to when, how much or how often you can prepay. Find out what options are available to you before you sign your mortgage documents, and choose the flexibility that is right for your needs.
The Appraisal Cost
Whether you’re applying for a new mortgage, a refinance, or you’re considering switching your current mortgage to a new lender, find out whether your lender covers the appraisal cost.
An appraisal is an independent report of the value of your home. It’s carried out by an accredited appraiser at your lender’s request. A full appraisal usually requires the appraiser to visit the property to assess the size, structure, features, etc. They’re generally more expensive than desktop appraisals which compares features of a home against the real estate listing features of recently sold comparable properties to get a value. Depending on the region and property type, appraisals may cost upwards of $250.2
Mortgage Pre-approval and Interest Rate Holds
While a mortgage pre-approval may give you peace of mind, read the fine print regarding rates carefully, especially in a rising interest rate environment. Does your pre-approval also include a rate hold between 60 and 120 days? This may be in the form of an actual interest rate, or even a rate discount, as in, “1/2 percent off the posted 3-year fixed interest rate for the next 60 days.”
When rates are going up, a guaranteed rate hold is valuable and could save you big bucks in interest down the road.
When you’re comparing mortgages, don’t get blinded by an attractive low interest rate. Look beyond it to the other features, and consider how they could benefit or hinder you financially. Remember, a good mortgage is more than just a pretty rate.
Sources:
1. RBC Royal Bank – Accelerating Your Mortgage Payment Schedule
This article is intended as general information only and is not to be relied upon as constituting legal, financial or other professional advice. A professional advisor should be consulted regarding your specific situation. Information presented is believed to be factual and up-to-date but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. All expressions of opinion reflect the judgment of the authors as of the date of publication and are subject to change. No endorsement of any third parties or their advice, opinions, information, products or services is expressly given or implied by Royal Bank of Canada or any of its affiliates.
