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Choosing Your Ideal Payment Frequency

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mortgage payments frequencyYour payment schedule is the frequency with that you make mortgage payments and ranges from monthly to bi-monthly, bi-weekly, accelerated bi-weekly, or even weekly payments.

Below is a quick overview of what each of these payment frequencies means:

Monthly Payments: A monthly payment is simply a single large payment, paid once per month; this is the default that sets your amortization. A 25-year mortgage, paid monthly, will take 25 years to pay off but includes the added burden of one larger payment coming from one employment pay period. With this payment frequency, you make 12 payments per year.

Example: $750k mortgage, 3-year fixed rate, 5.34%, 30-year amortization you would have a monthly payment of $4,156.19. No term savings; no amortization savings.

Bi-Weekly Payments: A bi-weekly mortgage payment is a total of 26 payments per year, calculated by multiplying your monthly mortgage payment by 12 months and divided by the 26 pay periods.

Example: $750k mortgage, 3-year fixed rate, 5.34%, 30-year amortization you would have a bi-weekly payment of $1,915.98 with term savings of $177 and total amortization savings of $1,769.

Accelerated Bi-Weekly Payments: An accelerated bi-weekly mortgage payment is also 26 payments per year, but the payment amount is higher than a regular bi-weekly payment frequency. Opting for an accelerated bi-weekly payment will not only pay your mortgage off quicker, but it’s guaranteed to save you a significant amount of money over the term of your mortgage. This frequency also allows the mortgage payment to be split up into smaller payments vs a single, larger payment per month. This is especially ideal for households who get paid every two weeks as the reduction in cash flow is more on track with incoming income.

Example: $750k mortgage, 3-year fixed rate, 5.34%, 30-year amortization you would have accelerated bi-weekly payments of $2,078.10 with term savings of $1,217 and total amortization savings of $145,184. Plus, you would save 4 years, 12 months of payments by reducing scheduled amortization.

Weekly Payments: Similar to monthly payments, your weekly mortgage payment frequency is calculated by multiplying your monthly mortgage payment by 12 months and dividing by 52 weeks in a year. In this case, you would make 52 payments a year on your mortgage.

Example: $750k mortgage, 3-year fixed rate, 5.34%, 30-year amortization you would have weekly payments of $957.50 with term savings of $253 and total amortization savings of $2,526. You can move to accelerated weekly payments to save even more!

Prepayment Privileges: In addition to fine-tuning your payment schedule, most mortgage products include prepayment privileges that enable you to pay up to 20% of the principal (the true value of your mortgage minus the interest payments) per calendar year. This can help reduce your amortization period (the length of your mortgage).

By exercising your prepayment privileges, you can take time off your mortgage. For instance:

  • Extra $50 bi-weekly is $32,883 total savings and an additional 1 year, 2 months time saved
  • Extra $100 bi-weekly is $62,100 in total savings and an additional 2 years, 3 months time saved on your mortgage
  • Extra $200 bi-weekly is $111,850 in total savings and an additional 4 years, 1 month of time saved on your mortgage.

Understanding the different payment frequencies can be key in managing your monthly cash flow. If you’re struggling to meet a large payment, breaking it up can be effective; while the same can be true of the opposite. Individuals struggling to make a weekly or bi-weekly payment, may benefit from one monthly sum where they have time to collect the funds.

Consider getting in touch with me today to determine what payment frequency is best for you OR you can download my app and calculate them for yourself!

Economic Insights from Dr. Sherry Cooper – March 2023

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The Bank of Canada was the first major central bank to hit the pause button on rate hikes in late January. Given the slowdown in inflation in the recently released January CPI, The Bank of Canada will refrain from hiking interest rates this month. 

That is welcome news for homeowners with adjustable-rate mortgages whose rate has risen 425 basis points in less than a year.

Variable-rate mortgage holders with a fixed payment have largely hit their trigger points if they bought in the past couple of years. While their monthly payments have not risen, many are not covering the higher interest costs on their mortgages. Hence their principal outstanding is rising. Little is known about how the lenders will handle that when it comes time to renew.

Housing starts also plunged 13% month over month in January.

Bank earnings are under pressure with higher taxes and capital requirements, and the federal financial institution regulator is looking to tighten mortgage terms somehow. More will be known in mid-April when the comment period is over.

Other sectors of the economy remain relatively robust. Labour markets continue to be very tight as the unemployment rate is near record lows, and job vacancies—though down a bit—remain high. This has boosted consumer spending despite inflation.

We expect a soft landing in the Canadian economy this year—a mild contraction in Canada in 2023 Q2-Q3. This is one quarter later than the Bank of Canada projected in their most recent Monetary Policy Report.

The economy is resilient, and inflation is falling, but the central bank is unlikely to cut rates this year. When rates begin to fall in 2024, they will remain well above the pre-pandemic level of a mere 1.75% for the overnight policy rate. Inflation in the decade before the pandemic averaged less than 2%. Over the next decade, inflation is likely to be higher, especially as on-shoring and the reduction in globalization will be much less disinflationary.

Preparing for the Spring Market

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Preparing for the Spring Market

According to the Canadian Real Estate Association, the Spring market is anticipating a drop in home prices edging down approximately 6% from 2022, putting the average home price at $662,103 in 2023. The downward trend stems from rising interest rates and continued uncertainty in the marketplace.

In some cases, sellers have taken their homes off the market in the hopes that prices will rise again; meanwhile, potential buyers are biding their time for interest rates to drop. Due to this, home prices may continue to see reductions throughout 2023, while interest rates are not expected to drop until 2024.

While not a particularly buyer-heavy market, there are still individuals who will be looking to make a move, upgrade/downgrade or simply relocate.

For those households who think they are on the purchasing end of the Spring market this season, here are five signs from Home Trust to know if you’re ready:

  1. Your income is stable: For most first-time home buyers, purchasing a house indicates that you can make regular payments to service a mortgage. Accordingly, you should make sure you have a secure and steady flow of income to make these payments over the length of your home loan period. While this is often thought to mean that you work a full-time job, many self-employed Canadians also have stable incomes – and alternative lenders, such as Home Trust, are willing to listen to their unique financial situations.
     
  2. You are ready with your down payment: Having enough money on hand for a down payment is important because the amount will impact the type of house you can buy, the amount you need to borrow and the range of financing options you qualify for.
     
  3. You found an area you can grow in: Buying a house means putting down roots, so you need to make sure that you can buy a house in an area that suits your needs and lifestyle. You should also be able to envision yourself living in that area over the next five to 10 years.
     
  4. You feel comfortable managing your debt: Paying for a house involves having the discipline and commitment to stick to a budget. Take some time to track your spending habits over a couple of months to find out if you are comfortable setting aside roughly 30% of your income to pay for your mortgage debt.
     
  5. You have an emergency fund on hand: Owning a home means that unexpected home maintenance expenses, such as plumbing and electrical repairs, could eat into your budget. So having an emergency fund on hand to cover six months’ worth of expenses will allow you to cover these unforeseen costs.

If you feel that these signs point to ‘yes’ or you have more questions about purchasing (or selling) a home this Spring, don’t hesitate to reach out to me directly for expert mortgage advice!

Fraud Awareness Month

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Fraud Awareness Month

Did you know? March is fraud awareness month in the mortgage industry, which makes this is a great time to talk about title insurance!

As our insurance experts, FCT is a leading provider of title insurance and has some helpful information for you: 

For those who don’t know, title fraud can impact both homebuyers and homeowners. Someone whose title has been stolen, or who purchased a fraudulently listed property has few options for recourse – and many never imagine this could happen to them.

Industry experts are urging homebuyers to purchase title insurance as part of closing. Tim Hudak, CEO of the Ontario Real Estate Association (OREA) recently described title insurance as “the best safeguard” for homebuyers.

While title insurance is still an option for homeowners after they take possession, even years later, the best time to purchase a title insurance policy is NOW before an issue like fraud is discovered.

“There’s no reason you shouldn’t be getting title insurance, just like you wouldn’t buy a house without property and casualty insurance,” says Daniela DeTommaso, President of FCT. When a homeowner with a title insurance policy learns their title has been stolen, they benefit from more than just their coverage.

“The title insurance company also has a duty to defend,” says Daniela. “That means that the minute we find out [title fraud] has happened, we step in and we protect [the insured]. We pay all of the costs.”

Those costs include the legal fees to restore a homeowner’s title, which can be in the tens of thousands, as well as the costs of investigating the fraud and handling all the legal processes.

“It’s not only compensating for that significant loss,” Daniela continues. “It’s also providing that peace of mind knowing that someone’s going to navigate this process for you, and any costs […] having to prove that you are who you say you are.”

If you aren’t insured yet, don’t wait for your home to make headlines. Protect yourself and your property with an existing homeowner’s title insurance policy from FCT.