Monday, April 22, 2019
A Dozen Savvy Mortgage Tips
I encounter it all the time. People are literally costing themselves thousands of dollars by not fully understanding their mortgage. You see, the problem with the mortgage industry is that they prey on emotion. What is this emotion you might ask? Owning/Buying a home is a very emotional thing. You think of family, friends, your future and often neglect to read the fine print. Today I am going to give you 12 Savvy Mortgage Tips that will help you get the most out of your mortgage. Whether you are buying your first home or already have a mortgage, take note. You might be able to save some hard-earned money.
1) Be Organized
When you go to get a mortgage or renew your mortgage, you will need certain documentation. The big one is proof of income. This means to hold on to paystubs, which you should make a habit of doing anyway, and hold on to your Notice of Assessments and T-4s. While you know you make a certain amount of money, the lender will need to verify it so you might as well have it ready. Also, hold on to other documents such as your most recent property tax bill, home insurance bill, investment statements, bank account statements, hydro bills, and any renovations or upgrades you may have done to the home if you are up for renewal. The more evidence you have of the claims you are making to the lender, the better. It saves you time and can save you money.
2) Get ahead of your renewal
If your mortgage is coming up for renewal, more than likely you will have 5 years to get ready for it. There is no excuse for it to surprise you and catch you off guard. Your lender should send you out a notice months before the date, but just in case, make sure you know when it is. Your mortgage may automatically renew on that date and you might not like what was offered to you. I work with many people at renewal time and the best cases are always the ones done months before the renewal date. It gives us plenty of time to find the best rate, which we can lock in well before, but also find the best situation. It also gives us time to track down any documents that may need to be found. Do not come in the day before, it just makes it tough for everyone involved.
3) Analyze your payment schedule
When you buy a home and especially at renewal time, it is important to analyze your payment schedule. The goal is obviously to pay down the mortgage sooner. This means nothing however if you are going into debt to do so. Accelerated payments only make sense if you can afford to do so. This is where the monthly budget comes into play. If you have that down pat, then what your payments are should be simple. Also, consider your savings rate while you are paying off your home as well. You might be better off saving for long term goals like retirement and easing up on the accelerated mortgage. The reason is simple, the interest rate on your mortgage might be far lower than the return your investments receive. Understand all sides of the equation and you will be alright.
4) Always shop at renewal
Have you ever received mail from your cell phone or internet provider telling you of the amazing deals they have for new customers? Meanwhile, you are paying twice that amount and you have loyally been with them for years. Doesn’t that piss you off? The same thing happens with your mortgage. Your current lender might not provide you with their best rate, let alone the best rate. Why you might ask? It’s because they already have you as a client and unless they must fight for your business, why would they? Therefore you should always shop around at renewal time. Let’s be honest, it doesn’t really matter who holds your mortgage if the rate and terms are good. Take some time and find the right fit.
5) Know the penalties for breaking your mortgage
You may think that moving your mortgage at renewal time will be easy, painless and above all, free. It might not be. It is important to find out the repercussions for moving your mortgage before you make the attempt. This can be done with a broker who knows what they are doing. Collateral mortgages, in which A Certain Green Canadian Bank is famous for, often have charges for moving your mortgage, even at renewal time. Ideally, you will know what the terms are for moving your mortgage when you sign up for it. In fact, your lender should tell you this, but most don’t because they don’t want you to even have that thought in your head. Always know your escape routes because you never know when the house will be on fire.
6) If you get a lower rate, don’t decrease your payments
If you are stable in terms of your monthly budget, getting a lower rate should not mean lower monthly payments. By keeping the same monthly payments and getting that lower rate you are now paying down more of the principle and less interest every month. That could shave years off your mortgage. Any little edge you can give yourself will add up in the end. There is literally nothing better than a paid off home in terms of your personal finances so find ways to make that a reality.
7) Throw in a lump sum deposit at renewal time
Remember when I said maybe an accelerated mortgage can take a back seat to saving that extra amount every month and having a standard mortgage payment.? Another reason why that can be useful is that you can throw a nice little lump sum at your mortgage come renewal time. There is no penalty for doing so, making it the optimal time to decrease your mortgage amount heading into the next 5 years. Going about the mortgage payments that way leaves you open to achieve savings goals, but also gives you the flexibility to make swift moves like paying down your mortgage, or taking advantage of an opportunity, like buying an investment property. So, so sweet!
8) Don’t feel trapped by the banks
Let’s face it, and I am probably preaching to the choir. The banks suck. They suck big time. You are not Stephen Anderson; you are Mortgage Account Number: 1908766. So, 1908766, why would you ever feel loyalty to a company that thinks of you just as a number. Furthermore, whether you are prosperous or in debt, they care not. In fact, they push debt on you as if they would rather have you in debt. Why you might ask? Your debt is their big business. Every single person I have met has a Big Bank horror story and every employee I know who works at one absolutely hates it. Just because they have been your bank your whole life, doesn’t mean you should do business with them. As my main money lady Gail Vaz-Oxlade says, “The Bank’s are not your friend!”
9) Refinance for the right reasons
I handle a lot of mortgage refinancing and there is often one common theme with them: Eliminating costly consumer debt. The sad thing is, that debt is not eliminated, just stretched out over a longer period. You might be putting a 25-year amortization on a cheeseburger. Puke. Where it does make sense is if the math adds up. For instance, crushing consumer debt is killing your monthly cash flow, so by refinancing, you can focus on saving and investing. Saving and Investing. I repeat, saving and investing. Never use a re-finance to fall into your old patterns of spending and wasting. Think of it as a teachable moment that something needs to change. Also, a refinance can make sense if you are using that money to make your home more valuable, think renovations. $25,000 used wisely can add an extra $75,000 to the value of your home. Go into it with your head on right and the mentality of wanting to eliminate this debt as soon as possible. Also, leveraging your home to invest that money is a risky proposition. Don’t let anyone tell you it isn’t, ever.
10) Anticipate some costs with the mortgage
Mortgages and buying homes are not free friends. There are always costs associated with buying a home. Closing costs can run anywhere from 3-6% of the value of the home. Even at refinance time there could be costs to moving the mortgage. Inquire if the new lender will swallow the cost as part of their goal to win your business. Also, the costs associated with buying or transferring a mortgage should be easily absorbed if you have a proper monthly budget and proper emergency savings. Remember, nothing is free in life, nothing.
11) Don’t use credit after you apply until it closes
I have encountered several instances where a client of mine, hovering on the edge in terms of debt-ratio or credit score, used the time in between application and closing to finance something stupid. DO NOT do anything out of the ordinary with your credit when you are in the middle of a mortgage application. Your approval is based on a complex set of algorithms and disrupting them might blow your approval. This can occur even after the application as the mortgage underwriters often do a couple of credit pulls during the process. Keep yourself tip top and squeaky clean or you might not like what comes back to you.
12) Mortgage Life Insurance
Yesterday, literally yesterday, I helped a couple apply for personally owned term life insurance. They were able to get covered for 500K at a price that was actually cheaper than what they were paying with the bank for Mortgage Life Insurance that only covered their 200K mortgage should one of them die too soon. Even better, god forbid if that coverage is ever claimed on, they can do with it want they want. Think “renting versus owning.” Not only that, as the mortgage value decreases after every payment they make, the coverage level and premium cost remain the same, which isn’t the case with mortgage life insurance from the lender. Even worse is that you might not even be covered, as lender-based coverage uses what is called “Post-Claim Underwriting,” which means they investigate your insurability after you make your claim. Personally-Owned Coverage investigates your insurability right up front, so you know you have coverage from the get-go. Long story short, get rid of crappy lender owned mortgage life insurance coverage. It’s one of the biggest scams out there folks.
Having all the right information when buying a home or renewing your mortgage will be the key to your success. There is a billion-dollar industry that exists on consumer ignorance. While that industry won’t ever go away, you can do your part to not let them take any more of your money than they should.
“While I encourage people to save 100% down for a home, a mortgage is the one debt that I don’t frown upon.” – Dave Ramsey
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