Mortgages

How much of your payments go toward interest.

Most mortgage payments are what they call blended payments, which combine repayments of the principal as well as the interest at once.  When you start paying off your mortgage, a significant part of your payments are going toward the interest, not the principal.  Over time, however, the principal of your loan decreases, which means that the amount you will owe in interest decreases as well.  As such, the portion of your payment that goes toward the interest will decrease over time, and the amount that goes toward the principal increases over time.  This is why additional lump sum payments make such a big difference when it comes to your mortgage; they go directly toward your principal, whereas your usual mortgage payments do not.

Your current lender won’t always give you the best deal at renewal.

Most homeowners renew their mortgage with the same lender that holds their current mortgage. No problem there – except that more than half of homeowners renewed their mortgages without negotiating different terms than what was presented to them in their renewal statement, according to a 2015 mortgage consumer survey.  Lenders are betting on the fact that you won’t want to switch lenders, and therefore aren’t bending over backwards to try and keep you.  That means that you can probably find better rates and/or more flexible terms elsewhere.  Don’t feel like shopping around?  Call your mortgage broker to do it for you.  Whether or not you used one for buying your home doesn’t mean that you can’t use them for refinancing.

Lenders want your monthly housing costs to be less than 32% of your income.

When your lender qualifies you for your mortgage, they use a system based on your reported and provable income as well as your debts.  They want to ensure that your monthly housing costs – including your mortgage, property taxes, heating, and condo fees, if applicable – don’t use more than 30-32% of what you’re brining in.  While this number is somewhat arbitrary and housing costs, incomes, and living expenses vary from one housing market to the next, if you don’t meet the criteria, then your mortgage application could be denied.

Missing a mortgage payment doesn’t automatically mean foreclosure.

It’s pretty obvious that missing a mortgage payment isn’t a good thing.  But life is full of unexpected surprises, and if you find yourself in a situation where you can’t come up with your mortgage payment one month, don’t throw your hands in the air and wait for the bank to issue an eviction notice.  Foreclosure proceedings are a lengthy process, and everyone, your lender included, wants to avoid them if at all possible.  So if you know you’re going to miss a mortgage payment, or if you already have, pick up the phone and call your lender.  You may be able to negotiate with them and figure out a new or interim payment plan to get you back on your feel, or maybe an early refinancing in order to lower your monthly payments.

The posted rate isn’t always the best rate.

Think of the posted rate as the opening offer in a negotiation.  Banks use the posted rate to provide a value proposition to their clients.  They often start with the posted rate and then offer discounts to preferred clients.  A savvy consumer needs to educate themselves and shop around.  Even if you get the secret or discounted rate, if you only get rates from one financial institution, you may still be paying a premium compared to other lenders.