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No one likes the idea of owing the bank money and being saddled with a mortgage that has a 25-year amortization period. Most homeowners dream about paying off their mortgage as quickly as possible and freeing up cash. With interest rates on the rise in Canada and with it, higher mortgage rates, the big question is, should you pay off your mortgage early or invest the money instead?

Knowing what to use your after-tax dollars on is an important question, and it’s not always obvious whether you should use extra savings to pay down your mortgage or invest for retirement.

Variables to Consider

The March 1 deadline is approaching for contributions to an RRSP, which can help reduce your annual tax bill. Knowing whether you should plan for retirement or pay down your mortgage faster has serious consequences.

Below are six variables you should consider when deciding which direction to go.

• Home’s current market value
• Mortgage interest rate
• Home appreciation in your neighbourhood
• Your income tax rate
• Expectations for inflation
• Assumed rate of investment return

When it comes to these six variables, use provincial or national averages to compare different scenarios between paying off your home early and investing. Everyone is in a different situation, so there is no right or wrong answer.

When You Should Pay Off Your Mortgage First

One of the biggest factors you need to take into consideration is determining how much you’ll pay in interest over the amortization (life) period of your mortgage. There are two parts to your mortgage, the principal and interest. The principal is the amount you borrowed from the bank and the interest is what you pay for the privilege of borrowing from a particular lender.

For example, if you buy a home for $350,000 and have a down payment of $35,000, you’ll need to secure a mortgage of $315,000. On a five-year fixed mortgage, with an amortization period of 25 years, and 5.34% interest rate, your monthly payment will be $1,894.00.

The amount you pay in interest over the life of the mortgage is $253,200; meaning the $315,000 mortgage really costs you $568,200. Or around $10,000 per year over the life of the mortgage.

Making accelerated or lump sum payments can help significantly reduce the amount you pay in interest. The less time it takes to pay off the mortgage the less you’ll pay in interest.

There are times when it might make sense to pay off your mortgage first. For example, if you’re an older, conservative investor, in a low tax bracket, and your mortgage has a high interest rate, paying off your mortgage first might be the way to go.

This scenario is in sharp contrast to someone who is an aggressive investor, in a high tax bracket, with a low, fixed mortgage interest rate. And you’re under 50 years of age. For this individual, it might make more sense to invest.

When Not to Pay Off Mortgage

There are times when you don’t want to pay off your mortgage ASAP.

• House Rich Cash Poor: In times of emergency, the last thing you want is to be house rich and cash poor. Sinking all of your money into a mortgage with the goal of paying it off early can leave you high and dry if you lose your job or are hit with some other unexpected emergency. It’s important to maintain a level of liquidity and have a cash reserve.
• Mortgage Interest is Inexpensive: A home is probably the biggest purchase you’ll make, and because the mortgage is secured by the value of the home, the interest rate is considerably cheaper than what you’d pay on credit cards and personal loans.
• Mortgage Payments Get Easier: In the early days of having a mortgage, it can be tough to meet your payments. Thanks to inflation and a growing income though, your monthly mortgage payment gets easier to make.
• Investments Outperform Interest Costs: Investments have, historically, outperformed the long-term interest costs of the mortgage. Admittedly, the stock market crash of 2008 has scared a lot of people away from investing, but it’s a good idea to diversify your holdings. For most Canadians, their only asset is their house and diversifying helps create additional wealth. Who is better off: someone who has saved $100,000 in an RRSP or TFSA, or the person with a small mortgage and no savings?

Investing Instead

Again, some homeowners are afraid to invest their money and would rather pay off their mortgage. But historically, stocks provide higher annual returns, around eight percent; mortgage rates in Canada are hovering around 3.75%.

Low interest rates may be good for mortgage rates but it isn’t very good when it comes to saving money. Today, banks provide interest on savings accounts of just one percent. If you had one million in a savings account, you would only earn $10,000 in annual interest. You might even lose money over the long-run because of inflation. That’s going to make it difficult to retire.

To generate wealth, you may need to invest in financial vehicles like stocks. Between 1970 and 2015, the average annual return on the Toronto Stock Exchange was 10.4%. If you invest wisely, your returns should outstrip the interest you paid on that $315,000 mortgage.

Not everyone will want to invest in stocks. A conservative investors may be attracted to fixed income investments like bonds or GICs. Having a healthy RRSP or TFSA balance can help you when times are tough. Yes, you’ll pay tax on any money you withdrawal from your RRSP, but it’s better than going into debt or maybe even losing your home.

Leave Your Options Open

Most people who get their first mortgage are younger and not thinking long-term about retirement. They probably spent years trying to save up for their down payment and are just focused on making mortgage payments.

It’s important for homebuyers to have a short and long-term goal when it comes to paying down their mortgage and saving for retirement. Is it more important to pay the mortgage down fast and live debt-free or is it better to invest any extra money you have?
It’s not necessarily a bad idea to leave your options open and take your time deciding what the best use of your money is.

Canadalend.com, Helping You Pay Down Your Mortgage Quickly

If you’re a homeowner and are trying to determine if it makes more sense for you to pay down your mortgage as quickly as possible or invest any extra money, the licensed mortgage specialists at Canadalend.com can help.

Why should you choose Canadalend.com? Traditional lenders only push their own products, even if it’s not in your best interest. The experts at Canadalend.com are independent, which means they’re looking out for what’s best for you. We have access to hundreds of different lenders. Many specialize in providing mortgages to first-time homebuyers, those who have been rejected by traditional lenders, with bad credit, no credit, and unreliable income.

At Canadalend.com, we develop long-term relationships with our clients and want to ensure you’re making the financial decisions that are right for your short and long-term financial and lifestyle needs.

To find out what kind of mortgage or financial options are available to you, contact Canadalend.com today or apply online and a Canadalend.com mortgage specialist will set up an appointment at your earliest convenience.

Homeowners are always looking for ways to pay down their mortgage the quickest way possible. And for good reason, the faster you pay it off, the less interest you end up giving the bank. This desire to save money has led people to come up with some strange, complex, and confusing ways to get out of debt quicker. One seemingly popular method involves using a home equity line of credit (HELOC) to make additional mortgage payments. But, as you’ll see, just because something works on paper doesn’t mean it will work well in real life. When it comes to paying off your mortgage faster, the best financial strategies are usually the simplest ones.

What Is a HELOC?

A HELOC is a revolving line of credit that is secured against the equity you’ve built up in your home. The HELOC comes with an adjustable interest rate that will go up and down with the markets.

The Bank of Canada has been raising its key lending rate and has said it has no plans on slowing down those plans. That means it’s getting more and more expensive to borrow money.

Like any line of credit, the HELOC is deposited into an account, and you can take out as much or as little as you like, whenever you like. There are no fixed repayment amounts, lenders only require you to make monthly interest payments on the equity you’ve accessed.

Is a HELOC Your Best Option for Paying Off a Mortgage?

The short answer to this question, is no. Technically, you can use the money in your HELOC for anything: renovations, vacation, car, tuition, etc. But using a HELOC to pay down your mortgage isn’t a sound financial idea.

According to one strategy, you can use your HELOC to pay off your mortgage in just a few years. But it’s not as simple as it sounds. There are also some doubts as to whether it really works or not.

As we all know, life rarely, goes according to plan, 100% of the time. Using a HELOC to pay down your mortgage could get easily derailed if you’re hit with an unexpected expense, or financial stress, like the loss of a job or reduction in pay.

A HELOC comes with a variable interest rate, meaning it fluctuates. At the same time, the vast majority of Canadian home owners have a mortgage with a fixed rate. With the above strategy, you’re exchanging a fixed mortgage rate with a variable HELOC rate. Variable interest rates are on the rise are expected to make significant jumps over the coming years.

Balancing a HELOC, managing your spending, and dealing with interest payments can be difficult for the most disciplined person. People refinance with a HELOC or home equity loan (second mortgage) to simplify their lives, not make them more confusing and susceptible to financial hardships.

Better Ways to Pay Off Your Mortgage Early

Pay More Than the Monthly Minimum Payment

Paying more than the scheduled minimum each month can help greatly reduce the time it takes to pay down a mortgage. Depending on the lender, you should have several repayment options. Reducing the principal helps reduce interest payments, which can save you tens of thousands of dollars in interest payments over the life of the mortgage.

Make at Least One Extra Payment Annually

An alternative to making higher payments is to make at least one extra mortgage payment each year. If you have a 30-year mortgage and make just one extra annual payment, you’ll slash the mortgage down to 26 years.

Refinance to Reduce Interest

Lower interest rates are the most popular reason to refinance a mortgage. More of a mortgage payment goes toward the principle, which means it gets paid off faster, with less going to interest payments. Having a lower monthly mortgage payment can also help free up money that can be used for day-to-day expenses.

Canadalend.com, Helping You Pay Down Your Mortgage Quickly

If you’re thinking of refinancing a mortgage or looking to take out a HELOC or home equity loan, the licensed mortgage specialists at Canadalend.com can help you find the best financial product with the best terms and rates.

Why should you choose Canadalend.com over the country’s big banks and other private lenders? The mortgage experts at Canadalend.com are independent, which means they’re looking after your best interest. Traditional lenders will only push their own products and services, even if it’s not in your best interest.

The independent mortgage professionals at Canadalend.com have access to hundreds of different lenders. Many specialize in helping homeowners with bad credit, no credit, and unreliable income, refinance their mortgage.

To find out what kind of mortgage or refinancing options are available to you, contact Canadalend.com today or apply online and a Canadalend.com mortgage specialist will set up an appointment at your earliest convenience.

What Is a No Income Verification Mortgage?

If you’re self-employed or a seasonal worker and want to purchase a home or refinance a mortgage, it can be extremely difficult to secure a mortgage. Why? Because your income is hard to verify. If you work on commission, there could be months where you don’t register any income.

Years ago, it was relatively easy to secure a “no income verification mortgage.” All you needed was a good credit score. Not anymore. No income verification mortgages are higher risk, and because of stricter lending rules, many traditional lenders no longer even provide them.

Does this mean 2.6 million self-employed Canadians have no way of applying for the mortgage they need to buy a house? Fortunately, there are other no verification mortgage options.

Do No Income Verification Mortgages Still Exist?

Yes, no income verification mortgages still exist. But they are not provided by the big banks. If you want a no income verification mortgage, you need to approach an alternative lender.

While there is still a process that has to be completed to get a no income verification mortgage, alternative lenders tend to be easier to deal with than the banks in these situations.

In addition, alternative lenders won’t insist on a perfect credit score like the big banks do. Plus, they can also be a better option for those who are self-employed or work on commission.

No Income Verification Mortgage Process

You’ll find that working with an alternative lender is much easier than dealing with the big banks. For one, when it comes to no income verification mortgages, alternative lenders will not ask for traditional proof of income, such as a T4 or CRA Notice of Assessment to determine your income.

What they want to determine is whether you earn enough to qualify for a mortgage, to do this, alternative lenders will want to see your business statements, showing your deposits and invoices.

Because no income verification mortgages are unsecured, you do not need to put down any collateral. Instead, the lender will want to look at the property you are buying, the location, and marketability.

What Are the Rates on a No Income Verification Mortgage?

Because no income verification mortgages are riskier than conventional mortgages, the interest rate is higher. Even here though, the rate can fluctuate. For example, the quality of your credit score will help determine the interest rate and how much the lender will give you.

The higher the credit score the lower the interest rate. If your credit improves, the lender can help you refinance at a better interest rate.

No Income Verification Mortgage Pros and Cons

As with any financial product, there are benefits and challenges with no income verification mortgages.

Some of the benefits of getting a no income verification mortgage include:

• Not having to wait for a strong employment history to get a mortgage
• The lender will not run complicated ratios and formulas to determine how much they think you deserve
• Quick and easy application process means getting a mortgage in a matter of days
• Access equity in the home to consolidate debt, etc, without having to show your income.

Some challenges of a no verification mortgage include:

• There is a risk/reward payoff with no verification mortgages, namely, higher interest rates. Lenders take a higher risk when they offer a no income verification mortgage. To compensate for that risk, they charge a higher interest rate. But again, that rate is determined on your income and credit score.
• With a stated income, banks look at your income, debts, and credit score to determine whether or not you will be able to repay the mortgage. With a no income verification mortgage, there is, statistically, a higher chance of default, since the income can vary.

Tips for Getting a No Income Mortgage Application Approved

There are a few things you can do to increase your odds of getting a no income mortgage application approved.

Good Credit Score: The higher your credit score, the better the interest rate will be. That does not mean those with bruised credit scores cannot still get a no income verification mortgage. Some alternative lenders specialize in helping those who are self-employed with a bruised credit, or no credit, secure a mortgage.

Mortgage Request is Reasonable: Make sure the mortgage amount you are requesting is reasonable compared to your income. The lender may not need you to prove your income, but you are still responsible for the mortgage, and they will want the amount to be reasonable.

Canadalend.com, Helping Provide No Income Verification Mortgages

The big banks might not think Canadians who are self-employed, work on commission, or seasonally deserve a mortgage, but the licensed mortgage professionals at Canadalend.com do.

We understand that no income verification mortgages are the perfect way for those who are self-employed and those who have difficulty proving consistent, annual income, get the financing they deserve.

Because the mortgage experts at Canadalend.com are independent, they are looking out for your best interest. Where the big banks only try and sell you their own financial products, even if they are not suited to your needs, Canadalend.com has access to hundreds of different lenders, and will help you secure a no income verification mortgage with the best rates and terms.

To see what kind of home equity loan you qualify for, contact Canadalend.com today or apply online and a Canadalend.com mortgage specialist will set up an appointment at your earliest convenience.

Beginning the hunt for a new home can be both stressful and overwhelming. Do you look first and then seek a pre-approval, hoping the dream home you stumbled upon will wait for you? Do you try to find a lender first and then explore open houses and enticing listings, not sure of how much you need to spend before you apply for a loan?

In any case, when it comes to finding the right mortgage, it can be helpful to speak with a professional mortgage broker. For starters, they are privy to information from a variety of lenders and will conduct research based on the information their clients provide to find their best match for a loan. It is their job to explore the market so mortgagees don’t have to.

Obtaining a Mortgage

Their role is to be the eyes and ears when it comes to obtaining a mortgage, investigating options on behalf of their clients, then compiling and presenting them—perhaps with recommendations on which one to pursue. This is especially important for new homebuyers, but a useful tool for anyone who needs to secure a mortgage.

How are they Paid?

Mortgage brokers are usually paid by the lenders or they charge their own broker fee. Further, mortgage brokers offer expert insight into the industry to help people save money. They stay abreast of the real estate market, regularly exploring trends and offerings. Consider them a wealth of knowledge about real estate and mortgages for you to tap into.

The Matchmaker you Need

Simply put, mortgage brokers connect their clients to mortgage lenders who can fulfill their individual needs at the lowest rate possible. They are an effective strategy to find the most suitable mortgage lender. Essentially, mortgage brokers play matchmaker for people seeking the best rates and long-term loans.

When searching for a home, there are a lot of complex and unforeseen circumstances to look out for. Enlisting the help of a dedicated professional to offer assistance can help ease some of that inevitable stress.

Contact us for more information about our approach to lending and to learn more about the benefits of working with our experienced team.