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re4 economist suntribune december 17 1986 moneysaving strategies give borrowers control by tony engel firsttime homebuyers arc- often surprised when they realize how much interest theyll be paying over the life of their mort gage but there are strategies that will cut these costs these moneysaving strategies give borrowers more control over the factors that determine mort gage costs the size and frequen cy of payments the time in which the loan is repaid the principal owed and interest rates borrowers now have the flex ibility to hike payment or pay off an extra chunk of the principal once a year they can make pay ments more frequently and this can simplify budgeting and they have more room to manoeuvre when interest rates are high with shorter terms open mortgages and other innovations with some mortgage agree ments monthly payments can be increased annually from 10 to 100 per cent over the term of the mort gage depending on the lender to illustrate the savings lets take a 50000 mortgage with a fiveyear term in which the in- terest rate is fixed at 12 per cent if the interest rate continued at 12 per cent over the following terms youd pay 105000 in interest over 25 years the standard repay ment or amortization period but if you augmented your monthly payments by 10 per cent each year you could save 65299 in interest expenses and have the loan repaid in less than nine and a half years lump sum payment once a year borrowers can also opt to pay a lump sum payment over and above their regular pay ment usually up to 10 per cent of the original amount of the mort gage free of charge these pre payments are deducted from the principal using the same example lets suppose you prepaid 5000 each year you could save almost 84000 in interest and have your mortgage paid off in just over seven years thats twothirds off on interest charges of course having a large down payment is still one of the best ways to keep down the amount of principal owed and high interest rates on deposits make it easier than ever to save up this sum conventional mortgages re quire a down payment of at least 25 per cent of the purchase price or appraised value government- insured mortgages can be arranged with as little as 10 per cent down however insurance and ap plication fees can add as much as three per cent to borrowing costs although they are a onetime only charge frequent payments can be easier on family budgets with weekly biweekly 26 payments a year or semimonthly 24 a year payments you can take a pay ment out of every pay cheque and save substantially on interest one extra payment normally these involve chip ping in the equivalent of one extra monthly payment over the year the more frequent the payment the more interest costs are re duced with the 50000 example youd save 38220 in interest costs and reduce your amortization to 174 years if you paid weekly instead of monthly biweekly payments would reduce interest expenses by 37796 and amortization to 175 years while these options give bor rowers more flexibility with their payments others help them deal with high interest rates terms as short as six months can allow people who buy when interest rates are high to renew at lower rates however many pre fer the stability of three four or five year terms a oneyear open mortgage may also let you renew at a better rate and you can pay off part or all of the mortgage on any payment date without penalty those buying resale properties can sometimes assume the sel lers mortgage blending the rate on the existing first mortgage with current rates to provide additional financing they not only benefit from a lower interest rate but avoid the need for a more costly second mortgage this means houses that would previously have been overlooked because the existing first mortgage is small are now within the buyers reach further some lenders will per mit you to take your existing mortgage interest rate and loan amount with you when you move to another home if additional funds are required these are adv anced at the current rate the interest rate of your old mortgage will be blended with the new interest rate for the balance of your current term and you still make only one monthly pay ment if interest rates are higher when you move you can save sub stantially by blending the rates as the mortgage business has become more competitive the op tions have multiplied thats why its more important than ever to shop around for the deal best suited to you key questions to make sure your mortgage has the flexibility to meet your fu ture needs here are some ques tions to ask can monthly payments be in creased during the term by how much how often can i make pay ments weekly biweekly semimonthly can i pay extra with my regu lar payments is there a penalty for this can i assume the sellers first mortgage increasing the amount with blended rates can your existing outstanding mortgage and interest rate be transferred to your new home can it be increased with blended rates this gives firsttime buyers a lot to think about fortunately in formation abounds booklets on mortgages are available from lenders and some government offices lenders are happy to dis cuss financing and mortgages editors note tony engel is the manager of the toronto dominion bank in the markham shopping centre mortgage rates economist survthe tribune compiled these rates as of monday dec 15 1986 mortgage lender var rate 6 mths 1 year 2 year 3 year 4 year 5 year bank of montreal 975 975 975 105 1075 11 1125 nova scotia 975 975 105 1075 11 1125 cibc 975 975 105 1075 11 1125 royal bank 975 975 105 1075 11 1125 toronto dominion 975 5 975 105 1075 11 1125 canada trust 975 95 95 1025 1075 11 1125 family trust 975 975 105 11 1125 national trust 975 95 975 1025 1075 11 1125 sterling trust 975 1025 1075 1125 1125 stouffville district credit union ltd 975 1025 1075 royal lepage 975 975 105 1075 1075 11 guaranty trust 975 95 975 105 1075 11 1125 appointment va a i mlt jt3l3bi wj bill leach wood gundy inc is pleased to announce the appointment of mr wj bill leach to the position of account executive in the markham office mr leach joined wood gundy inc with an extensive background in the investment industry bill may be reached at 2949151 3 centre street ste 205 markham ontario l3p 3p9 you love the weekender get all the news subscribe now to the economist sun call 2948244 for home delivery wewishyouaiherry s7 christmas from clare mcguckin manager jim stephenson asst manager board of directors and staff of the stouffville district credit union ltd ia investment opportunity in oshawa possible 18000 tax advantage in 1986 cash flow will maintain the carrying cost danielle volpe barbara mcnulty seminar unionville public library 15 library lane unionville thursday dec 18th 700 pm coffee and refreshments rsvp 4774172 4773271