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40 Year Mortgage Interest Saving Tip

40 year amortization period mortgages for various reasons are currently very popular. If your only choice is a 40 year mortgage, when buying a house, then here is a helpful tip for easing the burden of excessive interest costs. The example explained is the one shown by Garry Marr reported on Sept 8, 2007 in the National Post.

To keep the mathematics readable and informative I have rounded the figures!! According to the Canadian Real Estate Association, the average July 2007 sale price of a house in Canada was $311,000. An annual interest rate of 5.85% will cost a borrower $488,000 in interest costs over the 40 years, in addition to the $311,000 that must be paid back.

Once you sign the 40 year amortization period mortgage papers your aim should be to lower the amortization period at the first opportunity. An indirect way of achieving this and at no additional cost is to ask your lender to allow you to make weekly payments. The five major lenders in Canada will allow this at no extra cost.

You should at least elect to go with the non accelerated weekly payment.
The non accelerated weekly payment of $384 is the same amount of money (on a yearly basis) as if you made monthly payments of $1,666 and the best part is that you save $12,000 in interest over 39 years for doing absolutely NOTHING. I call this “free money”.

If you can find an extra $32 in your weekly budget, the accelerated weekly payment will save you $138,000 over the new reduced amortization period of 30 years. By paying the accelerated weekly, you have indirectly reduced your amortization period almost down to the “normal” 25 years and saved $138,000 in interest costs! If you make even larger weekly payments the savings increase further. Don’t expect your loan officer to enthusiastically advertise this method of savings. After all, what you save in interest costs the Bank loses on their bottom line. So don’t be fooled by all the fluffy features and benefits in the mortgage brochures. The other mortgage features may obscure this all important aspect! The most important aspect of your mortgage is the weekly payment plan, in order to save the most in interest costs!

 


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