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Ben Sage, Moving Woodstock

Are You Using These 10 Mortgage Reduction Strategies?

Posted on September 29, 2014 by Ben Sage in Advice, Mortgage, Real Estate

Originally Posted by www.donrcampbell.com

 

When in doubt go to an expert who knows more than you.

That has been my Modus Operandi throughout life. I find it both sad and amusing when people allow their ‘professional jealousies’ or their ‘fear of looking weak’ get in their way of doing more, knowing more and frankly making more money. Ego vs progress… I let progress win. If I can’t clearly justify my decisions and choices, then I shouldn’t be making them (that’s a real rookie mistake)

Why open a blog post on mortgage strategies like this?

Simply because I truly admit that I don’t know everything about everything. I am in continual learning mode; observing, watching, analyzing, absorbing.  I seek out those who I believe know more, in order to know more myself.

After 20+ years in the real estate industry I have to admit I know a lot about mortgages and financing – but no where near everything. This is especially true for financing because the rules and strategies change on a monthly basis. What has worked in the past may no longer.

That is why I took the time to sit down with one of Canada’s most knowledgeable mortgage and financing experts. It turned into a long and detailed discussion that traveled from monetary policy, interest rates, financing strategies, money supply, investing strategies and frankly a lot more.

It was so good, I have asked him to share a lot of these insights with you beginning with this weekend’s ACRE Event in Vancouver (November 16-17th). That means in addition to W. Brett Wilson, Richard Dolan, myself and many other experts you will also get to tap into the brain of one of my ‘go to’ guys Calum Ross (and yes, he has also committed to be there all weekend to sit with anyone who wishes to gain insights)

Mortgage Reduction Strategies –

Just one part of our discussion came from the fact that we have both heard hundreds (no exaggeration) of comments like this:

“I am sick and tired of how much money I spend on my mortgage”

“If I didn’t have a mortgage payment my life would be amazing”

“If only there was a way to pay my mortgage off more quickly”

“I can’t invest in real estate until I pay off my personal residence”

Clipping Coupons While Wasting Money

What we both, in parallel, have discovered is that most consumers, and many investors, don’t know that they have options or strategies they can implement that can substantially decrease their borrowing costs and the length of their home or investment mortgage.

I have always found it fascinating how many people I speak to who will chase ‘money-making schemes, or watch flyers to get sales and discounts on products they want, but who pay little or no attention to their home mortgage. They grudgingly pay it every month and then when it comes up for renewal they blindly sign the renewal doc, complain a bit, then get back to their ‘life.’ A huge opportunity lost.

There Are 10 Mortgage Reduction Strategies To Reducing Home Mortgage Cost

A residential home mortgage is one of the largest expenses a consumer will ever take on in their lives and sadly one of the least understood. That monthly payment eats a very large part of most people’s monthly budget.  Imagine the options that would open up to you if that payment disappeared. Would it be worth the effort to get rid of it, absolutely. Does it happen magically overnight? probably not.  But can you use strategies to accelerate that big event? Absolutely.  Most financially successful people have figured this out and do everything they can to destroy this expense. This is non-deductible debt, the type of debt we all need to reduce and eliminate if we want long-term financial success.

 

Below is just one small portion of the discussion Calum and I had, it includes 10 mortgage reduction strategies tips you can begin using today.  Some of the 10 seem obvious and others more obscure – yet even if they seem logical the vast majority never take the time to implement them.

Here Is The Text From Calum Ross Discussion:

“While today’s interest rate environment makes having a mortgage more affordable than ever, it is important to never forget that paying off your mortgage is for most people still a very good financial decision. With the average mortgage amount growing along with home values – making sure you pay down your mortgage has become more important than ever. While most mortgages today are amortized over 25 years, below are the tips that I give my clients who want to be mortgage free as quickly as possible. If you follow all the mortgage reduction strategies below, your mortgage can be gone a lot quicker than you think:

1)               Never get an open mortgage at a fixed rate unless you plan on paying it off within its term. Today’s closed mortgages generally offer 10-20% prepayment privileges, and can be obtained at a much lower rate. Open mortgages at fixed rates carry higher interest. Why pay higher interest unless you are going to exceed this 10-20% prepayment? You can always make bigger lump sum payments at renewal time with no penalty.

2)                Use accelerated weekly, or bi-weekly payments. Accelerated weekly payments are equivalent to ¼ of your monthly payment. Accelerated bi-weekly payments are equivalent to ½ your monthly payment. Both of these methods enable you to make one extra monthly payment a year – the effect of this alone reduces your amortization from 25 to less than 21 years.

3)                Give your mortgage the same raise as you get each year. If your income goes up 10%, so should your mortgage payment. This extra increase in payment will go directly towards principal repayment.

4)                Give your mortgage a portion of any bonus or extra income. If you spend 30% of your income on your mortgage, then 30% of any extra income should also go to your mortgage in the form of a prepayment. This bonus portion will go straight towards principal repayment.

5)                Keep your payments the same even if you renew or refinance at a lower rate. Since you know you can afford to pay at this level, don’t decrease your payment when you negotiate a lower rate. The difference in payments between your new rate and the old rate will go directly to the principal.

6)                Use your income tax return to put a lump sum payment towards your mortgage.  This is extra money that is not used in your monthly budget. Don’t indulge – make it really benefit you and use it to build your wealth.

7)               Use extra money from your budget. Most financially successful people have a budget that they live by, if you have a little bit extra then apply it to your mortgage. Minimum prepayments can be as little as $100 and add up quickly.

8)                Never use a home owner line of credit for long term borrowing. Home owner lines of credit were designed for short term borrowing and cost more than variable rate mortgages. If you are going to keep a large balance outstanding for long time then convert it to a fixed rate or below prime variable rate mortgage.

9)                Consider a variable rate mortgage or short term fixed when market conditions justify it. While the fluctuation will keep some people awake at night, those who can endure the rate adjustments can save money over time. Some variable mortgages are considerably below prime and one year fixed rates are typically the lowest fixed cost.

10)            Seek independent financial & mortgage advice. While many bankers do look out for your best interest, never forget that they work for the bank and not you. Their branch, organization, and shareholders all have a financial interest in lending at higher rates hopefully having you keep your mortgage for a long time. Talk to your financial planner, a competent mortgage advisor, or talk to a financially savvy friend.

 

It is important to remember that the lenders are in the business of making money and collecting interest on the loans they make, so their fiduciary responsibility lies with their shareholders (not mortgage holders), they won’t be too motivated to give you effective mortgage reduction strategies. So getting outside advise is critical.  In the process of arranging a mortgage – the mortgage provider is putting you in the largest debt of your life and I believe that mortgage advisers have a professional responsibility to help you manage that debt.

Yes it is true that that the above 10 mortgage reduction strategies steps take discipline and dedication, but the old adage still holds true – a penny saved is a penny earned! In fact – if you are in the top tax bracket in this country – a penny saved is nearly two pennies earned. The one thing that most financially successful people have in common is discipline and part of that discipline is paying off debts quickly. Following these simple steps will put you well on your way.”


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