Reducing your mortgage fees

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With a lot of discipline and determination, you can stay on top of your debts. Some decisions you make when buying a home can substantially reduce your interest fees.

Here are some things that could have a big impact on how much money is left in your pocket.

  1. Make the largest down payment you can

This will reduce the amount of your mortgage and the length of time it takes you to repay it. To help you increase your down payment, you can use the Home Buyers’ Plan. To avoid paying interest needlessly, consider buying a smaller home and paying it off in a period of 17 years.

  1. Reduce the repayment term

You can save several thousands of dollars simply by reducing your mortgage repayment period, for example, by repaying your mortgage in 17 years instead of 25 or 30 years. You’ll see just how much less interest you’ll pay.

  1. Increase the amount of your payments

If you can repay up to 15% of the original mortgage amount each year (or each term if the term is less than 1 year).

Double your payments whenever possible.

  1. Make a substantial prepayment when you renew your loan

This will greatly reduce the amount you pay in the long run.

  1. Accelerate your payments

Increase the frequency of payments to weekly or every 2 weeks and repay a bit more of your mortgage each time. In the long run, you’ll save a substantial amount and reduce the length of time it takes you to repay your mortgage.

With weekly payments, for example, you make the equivalent of 13 monthly payments a year, i.e., 4 weekly payments more, or 2 payments every 2 weeks more than a borrower on the regular payment plan.

A mortgage of $100,000 at an interest rate of 7.5% amortized over 25 years would be paid off in 25 years with monthly payments, while the same mortgage would take 20 years to pay off with payments every 2 weeks.

Compare interest rates

The tables below show the real cost of their home if they repay their mortgage over 25 years vs. over 15 years.

Cost of home Down payment Mortgage Interest rate
$250,000 $45,000 $205,000 6.75%

$205,000 mortgage repaid over 25 years

Payment frequency Payment amount Interest charges over 25 years Total cost of home including interest
Monthly $1404.35 $216,306 $250,000 + $216,306 = $466,306
Every 2 weeks $702.18 $171,113 $250,000 + $171,113 = $421,113
Weekly $351.09 $170,603 $250,000 + $170,603 = $420,603

$205,000 mortgage repaid over 15 years

Payment frequency Payment amount Interest charges over 25 years Total cost of home including interest
Monthly $1 803.51 $119,631 $250,000 + $119,631 = $369,631
Every 2 weeks $901.75 $101,883 $250,000 + $101,883 = $351,883
Weekly $450.88 $101,571 $250,000 + $101,571 = $351,571

 

By the way

If the amount of your down payment is less than 20% of the home’s value, you need to take out additional insurance, called mortgage loan insurance, from either the Canada Mortgage and Housing Corporation (CMHC) or Genworth Financial Canada.

The insurance helps protect lending financial institutions against the risk of mortgage default, which rises with the amount of the loan.

Use this tool to do the math

Use the How much can I afford to spend on a home? calculator to try different scenarios with various amounts and down payments.

To learn more about the housing sector or to get expert advice from the largest mortgage lender in Quebec, go to www.desjardins.com/home

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