1. Shop your mortgage interest rate
The following table shows what you could save on a mortgage by negotiating your interest rate. Note that you can often get a rate cut of around 1% by trading when you have a very good credit rating.
2. Shop well in advance
Whether it’s for a renewal or a new mortgage, financial institutions often allow you to shop around for your mortgage more than 3 months in advance. Better yet, some institutions allow you to get the best rate between the rate you are negotiating in advance and the rate that is in effect at the time of the new loan.
If you choose a variable rate mortgage, the rate will not be guaranteed, but the formula for determining it could be. For example, you could get the prime rate from the financial institution, minus 1%. In this example, the prime rate may fluctuate, but the formula applies.
3. Pay off your mortgage over a shorter period of time
The faster you pay off your mortgage, the less interest you pay. You save a lot of money.
For example, if you pay off a $200,000 mortgage in 20 years instead of 25 years at an annual interest rate of 4%, you will save about $25,250 in interest!
To be more precise, the value of money should be taken into account over time. Also, you should not only consider the total amount of interest paid. Ask yourself if it’s good for you.
4. If you get an interest rate cut, consider continuing to make the same payment
Suppose you have a $200,000 mortgage, pay 5% interest, and renew your loan soon at a 4% rate with a 20-year amortization period.
This loan costs you $603 every two weeks. If you benefit from a 1% rate cut, your payments will decrease to $555. And if you choose to continue paying $603 despite the rate cut, you’ll save $11,169 in interest and pay off your mortgage 2.3 years earlier.
5. Round your mortgage payment to the higher number
Suppose you pay $483 every two weeks to pay off your mortgage. Why $483? Instead, pay $500 if you can afford it. You will then save a lot of interest!
6. Make lump-sum payments if possible
Suppose you owe $200,000 at an annual interest rate of 4%. You plan to repay this amount in 25 years. If you pay $1,000 in advance, you will save $1,657 in interest over the life of your loan.
7. Don’t pay double mortgage insurance
Mortgage loan insurance protects your lender if you can no longer repay your loan. You pay for the insurance in one installment, but you can add that cost to your mortgage (except tax).
When you change lenders, if the amount and the amortization period of your loan do not increase, you may want to avoid paying a new mortgage insurance premium. Ask your former lender for the insurance certificate number and present it to your new lender. He will know that you have already paid for mortgage insurance.
8. Limit penalties
Financial institutions generally allow you to repay a portion of the amount borrowed without penalty. Before taking steps to terminate your mortgage and pay the applicable penalty, check the possibility of repaying the amount allowed without penalty.