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How to save big dollars (OK, small Canadian- sized
Title : How to Save Big Dollars on Canadian Mortgages
UY- ie mortgage payments are not
deductible, the capital gain on the family's primary residence
is not included in taxable income, and mortgage payments are
calculated semi-annually in advance.)
The Problem:
Most consumers simply wait for their mortgage to come due
and renew it with their bank at whatever rate their bank happens
to be offering at the time. After taxes, a mortgage can be the
next largest household expense for most Canadians. A mortgage
should be shopped for and all the features and benefits
should be compared. A minimum of three financial institutions
should be approached.
One of the biggest ways that Canadians can save on their
mortgage is to apply three months in advance to other
financial institutions offering mortgages and thus locking
in a 90 day rate guarantee.
What are the advantages of this?
The first is that when looking for a home, having a pre-approved
mortgage allows you to go shopping for a house knowing what
you can afford and what you cannot. This will save you time and
narrow your search.
The biggest advantage is that your interest rate will be guaranteed
for the 90 days following your application. Thus if interest rates
start at 7% and on the date of your applicationand on the date of
your purchase they have gone up to 9%, you save 2%.
Some institutions will even perform a scan of the period and if they
have dropped below 7% will give you the lower rate. If you have
a $100,000 mortgage, this translates into over
$2,000 that you will save. Note that this is after-tax money and you
probably had to earn $3,500 in order to be able to pay the $2,000.
In other words - it's like getting a $3,500 raise.
Often people have a misguided sense of loyalty to a financial
institution and are reluctant to switch mortgage lenders. There are
good reasons for remaining with one institution, but losing $3,500
is not one of them. Would you switch employers if you were offered
a $3,500 raise elsewhere? Fortunately, sometimes just the fact that
you have pre-approved rates from other institutions will encourage
your financial institution to match them.
I know many people today who applied for mortgages 3 months ago and
who today are signing at rates of 7.5% when currently (Feb '95) rates are
closer to 10.5%. In one case the individual just had a baby and the
increased interest on top of the newly-arrived bundle of joy would have
meant major lifestyle changes for this family over and above waking
up in the middle of the night to change diapers. Your loyalty has to be to
yourself and your family, before your mortgage lender.
The interest rate is important, however there are other features that should
be shopped for. A checklist to help you select the mortgage that is right
for you are noted below:
1. 90 day rate guarantee.
2. No cost mortgage transfer.
3. Competitive rates and terms.
4. 24 - Hour approval.
5. Mortgage pre-approval.
6. Bridge financing.
7. Group mortgage life insuarnce offered (some lenders only offer individual ins).
8. Flexible payment plans - ie weekly, semi-monthly etc.
9. Double payment privilege
10. Pre-payment privilege.
11. Early renewal privelege.
12. A 30 day commitment period prior to renewal.
13. Portable mortgage option.
14. Mortgage assumption option.
It is suggested that you lay these out on a sheet with the names of three
financial institutions across the top and compare as you would for any
major purchase.
I hope that these ideas and suggestion will save you big dollars and
that these savings will allow you to pay off your mortgage sooner,
free up money for your children's education, allow you to take a vacation,
work less, or retire earlier or more comfortably.
To obtain information on how to put these ideas into practice or to obtain an
Investors Group mortgage application and the checklist referred to above
contact myself: Douglas F. Hudson, MBA, CD at compuserve 75701,2010.
They will be either faxed or uploaded to you in fax format.
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