Seven Smart Mortgage Strategies for 2010

By Martin Shao, President of Valueland Mortgages

2009 is just behind us. What are your goals for 2010? Do you plan to buy your home? Do you still have a mortgage? If your answers are “yes” to the last two questions, then read on for 2010 mortgage strategies. These seven strategies will help you save money and pay off your mortgages faster.

Strategy 1: Re-review Your Mortgage

2009 was seen with the lowest interest rates in Canadian history. Is your current mortgage good for you in 2010? Is the mortgage payment still manageable for your income situation? Factors such as economic growth, interest rate environment and trend, the addition of a new child, educational plans, home renovation, and other family changes mean that your mortgage plan may require updating.

When was the last time you reviewed your annual mortgage statement? These statements tell you how much was paid as interest and principal. You might be surprised to learn that you have only paid a small amount of principal, but a large sum of interest.

Strategy 2: Do Not Just Pay the Minimum

Once you have set aside some savings for regular and emergency use, you may consider putting extra money into your mortgage account.

The money in your checking account doesn’t usually accumulate interest.  Even with your savings account, your bank does not pay you an interest rate higher than your mortgage rate.  So, what are you saving for? Whatever extra you pay into your mortgage will reduce your remaining mortgage principal on the day of your payment. Your interest will then be less on your next payment. Why do you give your money away to the bank for free?

Strategy 3: Do Choose Accelerated Bi-weekly Payments

With this frequency of payment, half the monthly payment is paid to the bank every two weeks instead of twice a month. Moreover, with the extra monthly payment every year, your total amortization is cut from 25 years to 21 years plus one month. You do not even notice the change, but have saved a lot of money this way.

Strategy 4: Do Become Critical of Mortgage Offerings

Under the market force and competition, various banks, trusts and mortgage companies constantly design and promote their mortgage products. With their powerful marketing machines, incidents of borrowers misled are not uncommon. If you find an incredible deal that is not believable, it may well be not deliverable or something not explained.  There is an ancient Chinese proverb that says well - “The buyer is not smarter than the seller!”

Here is one example. Do you really need a secured line of credit when arranging your mortgage? Your branch representative may have convinced you to have it even though you do not need it now. (Reasons: free to arrange and good to have.) Did you know that your mortgage then is locked with the bank and cannot be transferred without paying legal fees to another bank even if it is matured?

Do your own research to see if what is proposed is good for your own situation and to find out if the provider can indeed get you that deal. To avoid the loss of money and time, do not sign on the dotted line without understanding what you are signing on. Not only you need to pay attention what you are going to get now, but also the costs at the end of the term. Get a second opinion from your trusted mortgage brokers to assess your mortgage options.

Strategy 5: Do Arrange Your Mortgages Early

The sooner you arrange your mortgage, the better. Some apply for their mortgages just a few days before the closing date of their home purchase or the mortgage renewal date. This is simply wrong! You should apply for your mortgage as early as possible.

When you start thinking about buying a home, talk to your bank or your mortgage broker first. This process, called getting a mortgage pre-approval, guarantees your rate for up to 120 days! Within this time frame, you will get the guaranteed lowest rate even though interest rates may rise. You do not loose anything.

Strategy 6: The More You Explore, the Better Mortgage You Get

Perhaps you are satisfied with your bank’s mortgage offer, but are you 100% sure they are giving you the best deal possible?

If you do not explore other sources, you might miss a better plan. One suggestion is to use your bank as the benchmark and contact some other lenders and mortgage brokers for their best possible plans. While your bank can only offer its own mortgages, mortgage brokers such as Valueland Mortgages offer more than one bank’s products and may well include your own bank at a better rate.

Strategy 7: Keep a Good Credit History

Lenders will not lend you money based on your verbal commitment to repay the loan. Apart from assessing your total family income, banks always access your credit bureau file to find out if you have paid your bills on time.

A good credit history will make your borrowing easier, whereas a bad credit history will make the borrowing difficult and expensive. Having a collection item on your report does not help at all. For this reason, do not delay your debt payments.  If you experience an unfair treatment with a supplier or shop, pay the bill first and then resolve it with the supplier directly or in court.

Getting an annual credit report is a good way to know your credit standing and helps safeguard you from “identity theft.”