Tag Archives: accelerated payments

Payment Frequency

June 18, 2012

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When going through the details of a mortgage, many clients are frequently surprised that they have so many different options for payment frequency. Most assume you can only pay monthly or bi-weekly, but there are actually a bunch of different options available.

Monthly (12 payments per year): You all know this one – you make a payment once a month on a set day during the month (i.e. the 23rd of every month).

Semi-Monthly (24 payments per year): In this case you make 2 monthly payments (exactly half of what your monthly payments would be) on set days during the month (i.e. the 5th and 20th of each month).

Bi-Weekly (26 payments per year): Bi-weekly payments are made every 2 weeks (a convenient option for many people who get paid every 2 weeks). For example, your mortgage payment would come out every other Friday (bi-weekly payments are always on the same day of the week – every other ____day).

Weekly (52 payments per year): I think you can guess where this one is going – make a payment every week, on the same day of the week.

Accelerated Bi-Weekly (26 payments per year): This (popular) accelerated program is an amalgamation between the semi-monthly and bi-weekly payment frequencies. Basically you pay the semi-monthly payment (which is slightly higher than the bi-weekly payment) at the bi-weekly frequency. In essence, you end up making a month’s worth of extra payments each year (but in little tiny doses every other week).

Accelerated Weekly (52 payments per year): Similar to the accelerated bi-weekly, but you make half of the semi-monthly payment every week (which again is slightly higher than the normal weekly payment), which also results in making a month’s worth of extra payments each year (but in even smaller weekly doses).

 

The benefits of the accelerated programs are obvious: pay a little bit extra every payment, pay a LOT less interest on your mortgage over time. On a typical Canadian mortgage, the difference between an accelerated bi-weekly payment schedule and a regular bi-weekly payment schedule is almost $30,000 (and mortgage-free 3.5+ years sooner) – all by paying just slightly more per month.  Next time you’re working out the details of your mortgage with your bank or mortgage broker (first home purchase, refinance or renewal!), make sure to discuss the various payment frequencies – it can literally save you tens of thousands of dollars.

Tim

Tim is a mortgage agent in Barrie who specializes in helping first-time home buyers. He works with a variety of lenders and can help customize a mortgage with the best rates & options that fit the needs of each customer.

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Consumer and Industry Perceptions

January 16, 2012

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As part of its commitment to understanding perceptions about the Canadian mortgage industry, CAAMP (Canadian Association of Accredited Mortgage Professionals) surveyed both consumers and industry members this past fall. I thought it might be interesting to look at some of the results of that survey (my comments in italics).

  • Canadians have approximately 68% equity in their home, compared with 43% in the US (probably a combination of our financial prudence as a nation, and our continually increasing house prices)
  • 71% of homeowners say they are in a good position to weather a potential downturn in the housing market
  • 81% of Canadians would classify mortgages as “good debt” (good debt is called good, because many people believe that the outcome justifies borrowing the money)
  • 84% of mortgage-holders could withstand a mortgage payment increase of $200 per month (this is good because with the rock-bottom rates we currently have, interest rates will eventually have to increase, which will mean increased mortgage payments)
  • Among those who have paid off their mortgage, the average home was paid off 7 years quicker than the original amortization
  • In the past year, nearly four times more people made accelerated payments (36%) than withdrew funds from their mortgage (10%) (a clear indication that Canadians continue to strive to pay down their mortgages more quickly than scheduled – also due to the stricter refinance rules introduced last year)
  • 27% of outstanding Canadian mortgages originated through a mortgage broker (33% of first mortgages, but only 20% of renewals/renegotiations) (great to see more 1st-time home buyers use a mortgage broker, but mortgage brokers definitely need to make improvements helping more people get better rates and terms on their renewals and renegotiations!)
  • 90% of mortgage broker customers are satisfied with their mortgage experience – higher than the overall industry average of 87%
  • Customers of mortgage brokers expect to pay their mortgage off 5 years quicker (compared to 3 years among bank customers) than the original amortization (it’s like I mentioned last week – The Best Mortgage Rate is Not Always the Best Option – advice from a professional mortgage broker can help you pay off your home faster!)
  • The average mortgage broker customer received 2.8 mortgage quotes, significantly higher than 1.8 among bank customers (mortgage brokers do the shopping around for you – that’s how we get you the best rates and options: more selection!)
  • 82% of customers found out about their mortgage broker from one or more referral sources (if you’re happy with your mortgage broker, make sure to tell your friends and families about them, too – let us help everyone you know save money on their mortgages!)

Tim

Tim is a mortgage agent in Barrie who specializes in helping first-time home buyers. He works with a variety of lenders and can help customize a mortgage with the best rates & options that fit the needs of each customer.

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