Westworld Alberta
Issue link: http://westworldmagazine.ama.ab.ca/i/53603
money matters The Mortgage Race Strategies for coming out ahead in the home-buying game by Scott Messenger I SPENT LAST SUMMER FOCUSED ON TWO things: running and getting a mortgage to buy a new home. The deeper I got into both, the more the mortgage seemed like one of life's long-distance runs. Though maybe not a marathon. More like a half-marathon. Or a 10K. In other words, it's achievable. And as with a run, anyone who has made the right preparations can manage a mortgage. But you do need to know the lay of the course, and proper technique is important. Putting it all together and fi nding a pace that suits you – and even shaving off time as you near the fi nish – is easier than you think. Warm Up Right Prep for the race by educating yourself about the basics. A mortgage consists of two main elements: the principal, or loan amount excluding interest, and the inter- est. With interest, there are two ways to go: fi xed or variable. With a fi xed rate, you pay a percentage that is locked in for a predeter- mined period whereas a variable rate rises and falls with the Bank of Canada prime lending rate. Which you choose depends on your appetite for risk – some people breathe easier knowing their interest rate won't change for a set period, while others are willing to take a chance on the prime rate dipping. 3 WAYS TO PAY LESS IN THE LONG RUN ($300,000 property; interest rate of 5%) PUT MORE DOWN: 5% down (20-year amortization) YOU PAY: $464,470* 30 years (10% down payment) YOU PAY: $548,740 PAY MORE OFTEN: Monthly payments (20-year term & 10% down) YOU PAY: $455,820 Accelerated bi-weekly payments (20-year term & 10% down) YOU PAY: $433,660 *Totals include base amount and interest. All totals approximate. known as a conventional mortgage) reduces the total interest to about $179,000. An online mortgage calculator (try Bridgewater Bank's at bridgewaterbank.ca) can help map things out. The down payment is Get a Head Start The more money you put down before the starting gun fires, the sooner you'll cross the fi nish. "That means you'll pay less overall," says Ken Wallis, manager of customer sales and retention with Bridgewater Bank. Take a property worth $300,000 and a mortgage secured with the minimum allowable down payment of five per cent. Pay it monthly over 25 years at an interest rate of fi ve per cent, and you'll pay about $212,000 in inter- est over and above the price of the property. Putting more down, say 20 per cent (what's iStock your head start. The more you put down, the sooner you'll cross the fi nish. Shorten the Course You can save even more by shortening your amortiza- tion period, which is the time it takes to repay your mortgage. For example, by increasing your pace from monthly to "accelerated biweekly" (the monthly rate divided by two, paid 26 times a year), you'll fi nish three years ear- lier and pay around $30,000 less in interest on that $300,000 home bought with 20 per cent down. Committing to a shorter amorti- zation at the start – say, 20 years – will save another $30,000. Sprint to the Finish When you feel you've got the reserves for it, sprinting can shave a lot of time – and interest – off a mortgage (particularly when the course is that much easier, thanks to today's historically low interest rates). "Lenders often allow a percentage of the principal to be repaid annually," says Wallis. "Applying around 15 to 20 per cent of your original mortgage amount per year as a principal pay- ment amount can signifi cantly decrease your interest costs in the long run." Completely repaying a mortgage is one of life's milestones. It can seem daunting at the outset, but it does come with a fi nish line and a feeling not unlike that fabled runner's high. With the right approach, you'll cross more fi nancially fi t and nimble than ever – and much sooner than you expected. LEARN MORE ONLINE Looking for a mortgage? Thinking of refi nancing? Call Bridgewater Bank at 1-888-843-9991 and let us fi nd the right mortgage for you. Or visit us online. bridgewaterbank.ca WESTWORLD >> FEBRUARY 2012 37 10% down (20-year amortization) YOU PAY: $455,820 SHORTEN YOUR AMORTIZATION PERIOD: 20 years (10% down payment) YOU PAY: $455,820 10 years (10% down payment) YOU PAY: $372,840 20% down (20-year amortization) YOU PAY: $438,500