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12 - Real Estate:-The Oakville Beaver, Wednesday A pril 5, 2006 How to pay your mortgage off faster Buying a home is a big purchase. For most of us, realiz ing that dream means combining our savings with money borrowed through a financial arrangement called a mort gage. Whether you're planning to buy a home or already own one, paying off that mortgage can be a long-term commit ment. Most homebuyers would like to be mortgage-free sooner. But where does one begin? To repay a mortgage quickly and cost-effectively, begin looking at options and understanding them before you buy, or before your existing mortgage comes up for renewal. When house-hunting, your realtor can help you calculate how much mortgage you can afford and provide advice on the many options available these days. The next step is to shop around and compare what different financial institu tions have to offer. Lending money is a business and lenders will compete for your business. on a home. When qualifying buyers for mortgages, most lenders insist that mortgage payments and taxes, plus condomini um fees if they apply, should not exceed 30 per cent of a fam ily's monthly gross income. Despite their limited prepayment privileges (1 0 -1 5 per cent a year), most mortgages are 'closed,' meaning they can't be paid* off until the end of the term without a stiff penalty, usually about three months bonus interest. Full); 'open' mortgages can be paid off at any time, penalty-free, but they usually bear a higher interest rate. Get the best interest rate for the term you want Interest rates can have a huge effect on how much you pay. If rates are falling, you might want to take out a mort gage for a very short term and lock into a longer term when the rates are lower. If rates are rising and look like they may continue to rise, lock into a longer term. If rates are fluctu ating, take advantage of some of the many options available from lenders such as short-term convertible mortgages (where you can lock into a fixed interest rate at any time), or variable rate mortgages (where rates change from month to month along with market fluctuations). @ Home With The Goodale Group Don Goodale Brad Miller On renewal of your mortgage (when the term is up), most lenders will allow you to make any size repayment at no extra charge, many lenders also offer a double-up option where you double your monthly, weekly or bi-weekly pay ments at any time. When to re-finance your mortgage If you have a fixed rate, long-term mortgage, you don't have to be stuck with it. If interest rates have fallen more than two per cent, you may want to refinance the loan to get a better rate. The cost of re-financing can be high. So calcu late carefully or you will end up paying more than staying the course with your current rate. A word about mortgages Mortgages allow you to pay back the principal, or amount borrowed, plus interest, in regular installments. Often, the taxes on your home are also added to the mortgage pay ments. Most mortgages are amortized over 25 years. This is the length of time it will take for you to pay your mortgage off in full. Lenders provide money for a certain period, or term, ranging anywhere from six months to 10 years. Think of the amortization period as a school year -- a term is one semes ter. The most common mortgage is a conventional mort gage, where a lender will loan up to 75 per cent of the appraised value of the home or the purchase price, whichev er is lower. The remaining 25 per cent is the amount the buyer contributes as a downpayment. Some lenders offer high ratio mortgages which require only 10 per cent down by the buyer if they qualify. Government-assisted mortgages allow some buyers to borrow up to 95 per cent of the value Reduce your amortization period The average amortization period (when the mortgage must be paid off in full) is 25 years. But you can also arrange for shorter amortization periods. The shorter the period, the larger your payments, but the more you save on interest and tl^e long-term cost of the loan. The down side of prepayment Many lending institutions offer mortgage planning serv ices that help you calculate how much extra you need to pay to be mortgage-free sooner. Take advantage of these servic es. But keep in mind that while most forms of prepayment go directly to reducing the principal, it does not reduce your existing payment obligations. You are still required to make regular payments. Critics of prepayment also argue that if your interest rates are reasonably low, you can put the extra money to bet ter use. For instance, if you prepay $2,000 in a year, you get no tax benefit. However, if you put that money into a regis tered retirement plan, you'd get a tax break. If your mort gage rate is five per cent and you invest the $2,000 in a mutual fund at 10 per cent, you would make five per cent on your money rather than paying off your mortgage. Don Goodale is a sales representative and Brad Miller is an associate broker for CENTURY 21 Miller Real Estate Ltd. Both can be reached at 905-845-9180 or through the web at www.goodalemillergroup.com. This article was produced by the Ontario Real Estate Association and reprinted with their permission. Every effort was made to ensure the accuracy of this article. However, the information is general in nature. Please seek professional advice relevant to your specific situation. Weekly or monthly payments? In addition to monthly payments, some lenders offer weekly and bi-weekly payment options. These can save you a lot of money by reducing the amount of interest paid out, but they can also be a headache. 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