How do mortgage payments work in Canada? (and key tips home buyers must know)

How do mortgage payments work in Canada? (and key tips home buyers must know)



Welcome to Homebuyer's School brought to you by Brookfield Residential. So before we begin, if this is your first time on this channel and you want to get the latest strategies, tactics and tips on home buying, click the subscribe button below, hit the little bell see you don't miss anything. Hi Everyone, welcome to another edition
of Homebuyer's School, today I'm joined by Mutjaba Syed, manager mobile mortgage specialist with TD Canada
Trust and today the question we're gonna answer is, how do mortgage payments work? Yeah Karl that's a great question, so mortgage payments, the way they work is
there a mortgage payment consists of two different things which considered a
mortgage principal which is the amount of money that you're paying down on your
mortgage, and also the interest portion called P&I, principal plus interest.
So interest portion is just whatever the interest rate is based on what you've
picked, so your mortgage payment consists of your mortgage principal and
your mortgage interest. Great, so how do you go about calculating
your mortgage payments? Yeah that's a good question, so your mortgage payments are determined on a
lot of different factors, on your purchase price, the amount of down payment you put down so your mortgage amount, interest rates, amortization which we discussed last time so amortization just means the life of the loan, the higher the amortization the
lower the payment is, but also means that it will
take you that much longer to pay off your mortgage, lower the amortization
higher payments so a mortgage payment is determined in all those factors to see
what your payments are going to be. Great, is there–do you know which is
better to have, a bi-weekly vs a monthly? Yeah absolutely. So kind of just depends
on what your personal preference is, it could depend on your pay structure if
you're getting paid monthly then maybe having a mortgage payment come out
monthly it would make sense with your budgeting, if you like bi-weekly if you feel
it's a lot easier for you to budget bi-weekly, it's a lot more convenient for
you, you can set up biweekly. Banks also offer semi-monthly which is twice a
month and sometimes even weekly so it really depends on what your comfort
level is and what you set yourself for your budgeting. So Mo, I've also heard about accelerated and not accelerated, can you
explain that a little bit more in terms of accelerated payments and non-
accelerated payments? Yeah absolutely. So all banks actually give you some
prepayment options available to actually help pay off your mortgage sooner, any
prepayment options taken advantage of goes right towards your principal so
accelerated payments just means paying a little bit extra compared to a normal
payment which actually can make a huge impact on paying it sooner and
reducing amortization which in turn also reduces your interest charge as well,
gernally at the interest cost so the difference between the accelerated and
non-accelerated is non-accelerated is your normal payment accelerate payment
just means a little bit more whatever you've actually budgeted to pay above
and beyond your normal payment will be an accelerated payment. One question I've always wanted to know
is if you had the capability, let's say you have five years
left on your mortgage, if you had the capability to pay off your entire
mortgage all at once right, is it better to continue paying it monthly or
bi-weekly or is it better just pay it off all at the same time? Yeah, so that's a great question as well Karl, it's all based on personal
preference whatever your personal preferences and whatever stage you're in
so if you feel like, hey you have some plans for those funds, you need those
funds for a rainy day or you have some investment plans, it's great to kind of
hold on to that money. But if you feel like, hey you want to get your mortgage
paid off sooner, it's a great way but I would definitely have a conversation
with your bank to see, hey do you have some prepayment options available to
pay off the mortgage without facing any penalties. Most banks offer prepayment
privileges so you want to make sure you have a conversation with them to
see does your paying off your mortgage fit within those prepayment privileges
so there's no any penalties incurred to do so. So why would there be a penalty in paying
my mortgage faster? Well just depends Karl, there
might be no penalties and there could be a penalty, it just
depends on your prepayment options that you set with yourself at the bank at the
time that you sign the contract with them, you are allowed to have a certain
amount so it's great to have a conversation with them to see, "am I
paying off my mortgage within the limits of my prepayment options," and if it is great there is no penalties, but if you've
actually already used your prepayment options available, there might be a slight
bit of penalty. Once again it's a great conversation to sit down and have with
your bank or lender to see if there are any So Mo, do you have anything else add
in terms of mortgage payments? Absolutely, what I would really
recommend to clients if you set yourself a budget and you have some free available
funds available it's definitely to add a little bit extra to your mortgage to kind of
accelerate the payments, a little bit extra I can actually make a huge
difference on your life of the loan, sometimes adding an extra 50 bucks, $50
bi-weekly or a $50 monthly could actually impact your mortgage being paid
off a lot sooner. Perfect well thank you very much Mo.
Remember everyone that we have a lot of great videos on mortgage rates and
mortgage pre-approvals that you can find in the description below, thank you
very much for joining us and we'll catch you next time. That's another edition of Homebuyer's School. Tune in next time for more expert tips and tricks and visit homebuyersschool.ca to bring you one step closer to finding your dream home. As with everything, it would be great if you like and share our videos, also please let us know if you have any home buying questions you want us to answer.

2 Comments

  • Homebuyer's School

    April 4, 2019

    Do you have any tips or strategies when it comes to setting your mortgage payments?

    Reply
  • Mark P. Leclerc

    April 4, 2019

    If im only pre approved for say 150 000$ but the house I want is 200 000. Do I have to give the 50k down cash, or are there any other options? Thanks for this series, it is nice to have some Canadian specific information keep up the great work!

    Reply

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