3 Tips to Manage Your Mortgage Properly

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Buying a house or a condo is probably the biggest debt you will ever have in your life. What should you know to make sure you have as much money left in your pockets as possible?

1. Aim high for your down payment

It is not easy to do, but it is in your best interest to accrue the largest down payment possible before buying your house. Having less debt makes you less vulnerable to an increase in interest rates or unexpected events.

Accruing a larger down payment is also beneficial, as you may have to pay your mortgage for more than 20 years. For example, you purchase a home for $400 000 with a 5% down payment, that is, $20 000. If the duration of your mortgage is 25 years, you will have paid just over $283 000 in interest at a rate of 5%. If you are able to make a down payment of 20%, or $80 000, you will pay $44 700 less in interest. In addition to repaying a smaller debt and paying less interest, you will have avoided mortgage insurance fees, which would have amounted to just over $15 000 in this case. Mortgage insurance is mandatory if the down payment is less than 20%.

2. Explore mortgage offers and compare them

You can choose between a variable and a fixed rate when you take out a mortgage. Is one better than the other? It depends! It has been shown that, in the very long term, variable rates are often the most advantageous. However, if you want the amount of your mortgage payment to remain the same each month, a fixed rate may be a better option for you.

In any case, browse through the offers and do not wait until the last minute! At most financial institutions, you can request to lock in your interest rate a few months in advance to give yourself time to compare your options.

Check whether you can repay your mortgage faster

In addition to accruing your down payment and choosing your interest rate carefully, you could use two strategies to repay your mortgage faster and pay less interest:

1. Make accelerated payments every two weeks instead of every month. Your payments will be slightly higher than if you divided your monthly payment in half. But if you can afford it, it is equivalent to making one more payment per year! This shortens the duration of your mortgage repayment and saves you thousands of dollars in interest in the long run!
2. Make an early repayment, if your mortgage contract allows you to do so. Often, you can pay 10% to 20% of your initial mortgage amount each year to repay your debt faster. For example, if your mortgage is $200 000, you can pay up to $20 000 each year. Other contracts offer the option of doubling your mortgage payments. This can be an interesting option if, for example, you have unexpected income, such as a bonus at work, and if your mortgage interest rate is higher than the return you could get from your investments.

3. Group your debts in a home equity line of credit

If you have several debts, you could group them in a home equity line of credit. It is a loan that is guaranteed by your house or condo. It allows you to have a lower interest rate than other types of loans.

Usually, the line of credit granted corresponds to a maximum of 65% of your house or condo's value. For example, if your house is worth $400 000, you could obtain a maximum home equity line of credit of $260 000. But be careful: you have to be disciplined with a line of credit.