FIND AN EXPERT
Let us connect you with
the right broker for you.

Contact Us

FIND AN EXPERT
Drop your contact info below, and we'll be in touch. 

Contact Us

Using Your Pre-Payment Privileges

Jackson Middleton • Nov 13, 2018

You could say a mortgage has a personality. While it might seem like an unusual way to describe what is basically a financial transaction, it’s actually apt. Mortgages do have personalities. That’s because there are so many details and aspects to any mortgage. And if you’re about to sign on the dotted line, it’s important to get to know the personality of the mortgage before you do.

One feature of a mortgage is accelerated payments, or pre-payment privileges.

Before we get into all the great things that can come from accelerated payments, you need to know that not every mortgage will have pre-payment privileges. It comes back to the mortgage personality; no-frill mortgages that have super low rates may seem tempting, but you probably won’t get other benefits, like pre-payment privileges. You need to make sure your mortgage broker explains all the personalities of your mortgage.

If you do have these pre-payment privileges, accelerated payments are fantastic if you use them.

A full-frill mortgage product could have a number of pre-payment privileges including accelerated payments of up to 20 per cent of your monthly payment, double monthly payments, and annual payments of up to 20 per cent of the full loan amount.

You might be surprised how much time you can knock off your mortgage by accelerated payments.

For example, on a 30-year mortgage, a one-time 10 per cent increase on your monthly payment can shave four years off your mortgage. If you bumped up your payment by 10 per cent each year, you would be mortgage free in 13 years. If 10 per cent is too high, five per cent gets you mortgage free in 18 years.


Making a double mortgage payment once a year can also cut four years off your mortgage.

Don’t forget, anything you put down also goes directly to the principal of the mortgage rather than the interest.

If you’re signing on to a new mortgage, you might be thinking of a short amortization period, like 10 years, because you don’t want to be making mortgage payments well into your golden years. No one really does. But that’s where accelerated payments can pick up the slack.

Instead, it’s worth considering taking that 25 or 30-year mortgage and using accelerated payments to make up the difference.

If life throws you a curveball and you’re in a short amortization period like 10 years, you may find yourself stretching to make payments.

Rather than setting a shorter amortization and a payment you’re contracted to make, use pre-payment privileges and accelerated payments to get the amortization you can control, rather than the payments controlling you.

While the benefits are literally in front of your face, statistically, not many people will choose to make accelerated payments once the mortgage gets going. If you really want to take advantage, set up accelerated payments the day you sign your mortgage.

Your mortgage broker can give you all the details you needs to make the best decision.


This article was originally published as part of the DLC Newsletter in November of 2018.



RECENT POSTS 

RRSP As A Downpayment

By DLC Canadian Mortgage Experts • 28 Dec, 2022
Did you know there’s a program that allows you to use your RRSP to help come up with your downpayment to buy a home? It’s called the Home Buyer’s Plan (or HBP for short), and it’s made possible by the government of Canada. While the program is pretty straightforward, there are a few things you need to know. Your first home (with some exceptions) To qualify, you need to be buying your first home. However, when you look into the fine print, you find that technically, you must not have owned a home in the last four years or have lived in a house that your spouse owned in the previous four years. Another exception is for those with a disability or those helping someone with a disability. In this case, you can withdraw from an RRSP for a home purchase at any time. You have to pay back the RRSP You have 15 years to pay back the RRSP, and you start the second year after the withdrawal. While you won’t pay any tax on this particular withdrawal, it does come with some conditions. You’ll have to pay back the total amount you withdrew over 15 years. The CRA will send you an HBP Statement of Account every year to advise how much you owe the RRSP that year. Your repayments will not count as contributions as you’ve already received the tax break from those funds. Access to funds The funds you withdraw from the RRSP must have been there for at least 90 days. You can still technically withdraw the money from your RRSP and use it for your down-payment, but it won’t be tax-deductible and won’t be part of the HBP. You can access up to $35,000 individually or $70,00 per couple through the HBP. Please connect anytime if you’d like to know more about the HBP and how it could work for you as you plan your downpayment. It would be a pleasure to work with you.

Is There A Difference Between A Deposit And Downpayment

By DLC Canadian Mortgage Experts • 21 Dec, 2022
If you’re new to the home buying process, it’s easy to get confused by some of the terms used. The purpose of this article is to clear up any confusion between the deposit and downpayment. What is a deposit? The deposit is the money included with a purchase contract as a sign of good faith when you offer to purchase a property. It’s the “consideration” that helps make up the contract and binds you to the agreement. Typically, you include a certified cheque or a bank draft that your real estate brokerage holds while negotiations are finalized when you offer to purchase a property. If your offer is accepted, your deposit is held in your Realtor’s trust account. If your offer is accepted and you commit to buying the property, your deposit is transferred to the lawyer’s trust account and included in your downpayment. If you aren’t able to reach an agreement, the deposit is refunded to you. However, if you commit to buying the property and don’t complete the transaction, your deposit could be forfeit to the seller. Your deposit goes ahead of the downpayment but makes up part of the downpayment. The amount you put forward as a deposit when negotiating the terms of a purchase contract is arbitrary, meaning there is no predefined or standard amount. Instead, it’s best to discuss this with your real estate professional as your deposit can be a negotiating factor in and of itself. A larger deposit may give you a better chance of having your offer accepted in a competitive situation. It also puts you on the hook for more if something changes down the line and you cannot complete the purchase. What is a downpayment? Your downpayment refers to the initial payment you make when buying a property through mortgage financing. In Canada, the minimum downpayment amount is 5%, as lenders can only lend up to 95% of the property’s value. Securing mortgage financing with anything less than 20% down is only made possible through mortgage default insurance. You can source your downpayment from your resources, the sale of a property, an RRSP, a gift from a family member, or borrowed funds. Example scenario Let’s say that you are looking to purchase a property worth $400k. You’re planning on making a downpayment of 10% or $40k. When you make the initial offer to buy the property, you put forward $10k as a deposit your real estate brokerage holds in their trust account. If everything checks out with the home inspection and you’re satisfied with financing, you can remove all conditions. Your $10k deposit is transferred to the lawyer’s trust account, where will add the remaining $30k for the downpayment. With your $40k downpayment made, once you sign the mortgage documents and cover the legal and closing costs, the lender will forward the remaining 90% in the form of a mortgage registered to your title, and you have officially purchased the property! If you have any questions about the difference between the deposit and the downpayment or any other mortgage terms, please connect anytime. It would be a pleasure to work with you.
More Posts
Share by: