A Beginners Guide to Owning a Mortgage
Previously we talked about the Beginners Guide to Getting a Mortgage. Now that you got your mortgage here is a beginner’s guide to owning a mortgage.
Well, technically you don’t “own” your mortgage. In fact as soon as you get the mortgage you “owe” money to the lender who gave it to you. In this article A Beginners Guide to Owning a Mortgage we will raise awareness about and the importance of managing one of the largest debt’s that you will ever have; a mortgage loan
Mortgage Payment Frequency Options
At the most basic and elementary level, you need to pay back your mortgage on an on-time and regular basis as per the payment frequency you agreed upon with the lender. The Canadian Chartered Banks, Credit Unions, Trust companies, monoline lenders, and others will normally give you the borrower several payment frequency options to choose from; monthly, bi-monthly, bi-weekly, accelerated bi-weekly, weekly, and accelerated weekly.
The shorter between the payment frequency’s the more you are paying the lender back and therefore helping reducing the overall life of your mortgage, called the amortization. As well, the more payments you make, the less interest you pay and more of your payments go towards the principal owing, which in turn, the less you owe in principal the less interest is calculated on the lower principal amount.
We recommend to our clients to consider something in the middle ground. This way they won’t feel the pressure of making weekly payments, and at the same time will be taking advantage of making a little more payments than just 12 a year; the bi-weekly accelerated payment frequency option . The accelerated part means that the lender will increase your bi-weekly payment amount a little more by a certain percentage. For example if your bi-weekly payments are $1,000, then your accelerated bi-weekly could be $1,095. This extra $95 every two weeks can go a long way towards helping you save on interest payments.
Mortgage Prepayment Options
In a beginners guide to owning a mortgage we don’t want to forget telling you about the mortgage prepayment options the lenders give you throughout the year. Depending on which lender your mortgage is with, you are allowed to increase your regular mortgage payments by up to 10%, 15%, 20%, or 25% of the original payment amount.
As well, you are given the option to make a lump sum deposit towards paying down your outstanding mortgage balance. Again, depending on which lender your mortgage is with, you can make a lump sum payment of up to 10%, 15%, 20%, or 25% of the original mortgage amount towards your outstanding mortgage balance. And most lenders permit multiple lump sum payments throughout the year, as long as you don’t exceed the maximum percentages each year.
Although people don’t want to worry about any extra money being paid to the bank during their term with the lender, it is a good idea and a wise one to be mindful of setting aside a set amount each month for making lump-sum payments in the year or at the end of each year. By sacrificing a small amount earlier on in the life of the mortgage you are helping to pay less interest to the lender in the total life of the mortgage. For many borrowers who normally buy their homes at the prime of their life and having job security with a steady flow of income, making extra payments towards reducing their mortgage amount is definitely part of ‘owning’ your mortgage.
Be Wise and Prudent
A beginners guide to owning a mortgage wouldn’t be complete without a mention about being a wise and prudent borrower. Never borrow in excess and beyond your means. You wouldn’t want to put yourself in a situation where in the middle of your mortgage term you are unable to make mortgage payments or the high payment amounts create undue stress on your personal finances. The lenders are flexible and accommodating to a certain extent when it comes to late payments, or missed payments, however, they don’t like to see it happen too often, and certainly not regularly. Otherwise, you could find yourself in a legal mess and at the worst case scenario losing your home.
There are many resources out there, and since this article is a beginners guide to owning a mortgage here is one for your reading. Visit the Financial and Consumer Services Commission of New Brunswick and check out their Saving Money tip, which can help you towards controlling your debts and saving more money towards paying down your mortgage balance.
We always like to hear from our readers relevant feedback and information. What has been your experience with having a mortgage? Would you add anything else in a beginners guide to owning a mortgage?