The amortizations gods have been good to Canadians over the past three years. Just 60 months ago, mortgage rates were nearly double what they are now, costing homeowners thousands of dollars in interest every year. In fact, if you were to compare interest costs in 2007 with today’s rates, you’d save over $100,000 in interest over a 25 year amortization period on a $200,000 home.
There’s no doubt that now’s the time to take advantage of these historically low rates. Which begs the question – are homeowners doing enough to capitalize on these record-breaking deals?
According to recent data from the Canadian Association of Mortgage Professionals, about 60 percent of mortgage holders make only the minimum mortgage payment required. On the other hand, the number of Canadian’s missing or defaulting on loan payments have dropped to pre-recession levels, even though the amount of money owed has steadily risen. According to Equifax Canada’s latest Quarterly Credit Trends Report, only 1.22 percent of debts were left unpaid after 90 days or more during the third quarter. That’s a sizeable drop, down from 1.37 percent in the previous quarter.
This data suggests that Canadians are becoming more financially responsible – but is it enough? As the threat of increased interest rates continues to loom, now’s the time to take advantage of the many perks associated with accelerated mortgage payments and shortened amortization periods.
The Trick to Saving on Your Mortgage
Just how important is amortization in regards to your mortgage savings? David Stafford, managing director of real estate secured lending at Scotiabank was quoted in a recent Globe and Mail article stating the following:
“Canadians have a legacy of focusing on rates as the primary means to save on the cost of borrowing. That’s where all of the time and effort is being invested. But the actual cost of a mortgage is based on how much you borrow, at what rate, and for how long. And with rates well below recent historical averages, the best way to save money on a mortgage is to use today’s low rates to shorten the amortization.”
While it’s unlikely that mortgage rates will skyrocket to 2007 levels anytime soon, it never hurts to prepare for increases. When rates do start to climb back up, the impact could be catastrophic for those mortgage holders who have been living payment to payment. As such, if you’re a prospective mortgage holder, now’s the time to ask yourself whether you’d be able to carry the costs of owning your home if rates were to return to 2007 levels.
If your answer is no, it’s time to reassess your housing needs. Mortgage holders with a lot of high-interest debt and low emergency savings need to focus their attention on reducing these costs. Otherwise, it’s time to increase your mortgage payments and start whittling down your loan.
Don’t Shrug Off Debt
Homeowners shouldn’t discount the opportunity to accelerate their mortgage payments now. Getting ahead while interest rates are low just makes sense. And yet, very few Canadians are making the most of this investment opportunity. Whereas the generation beforeo urs paid off their mortgage in roughly 12 years,, about on in four homeowners are now projected to carry their mortgage into retirement. What’s more, retirees are accumulating debt at three times the average price.
This casual attitude towards debt may not be a problem now, however storm clouds are looming.
For more information on accelerating your mortgage payments contact the experts at FamilyLending.ca. Our mortgage brokers can help you secure a low interest rate now, as well as provide you with a plan to reduce your interest costs down the road.