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Everything You Need to Know About Mortgage Payment Schedules

Canada has an enviable homeownership rate, with over 60% of the population owning a home.

However, like in most other countries, funding is the biggest obstacle to home ownership. The lucky few pay for their homes upfront; the majority take out a mortgage.

Understanding your mortgage payment schedule is crucial if you ever decide to take one out.

What Is A Mortgage Payment Schedule?

A mortgage payment schedule (or amortization schedule) outlines how you will pay back the cash advance to you.

Once a lender agrees to offer you a mortgage, they also draw up a program that divides the repayable amount into equal or almost equal amounts. You will then pay these amounts in weekly, bi-weekly or monthly installments.

Your payments will feature two things; principal and interest.  

Principle vs Interest

The total amount you repay your financier will include the principal and the interest.
The principal is the amount you borrowed from the lender without any additional fees.

Each time you make a payment, a percentage of it will go towards the repayment of the principal balance.

Lenders are in business. As such, they have to make something off the cash you borrow. This is known as interest; the higher the interest rate, the more expensive your mortgage becomes.

he bulk of the cash you pay in the earlier years of mortgage repayment will primarily go towards repaying the interest. The scenario then reverses as you near completion.

So how can first-time home buyers in Edmonton pick the best repayment schedule?

Which Payment Schedule Is Right For You?

Isn’t this the million-dollar question? The best plan considers multiple factors and gives you the best fit.

So what are these considerations?

1. Look at the Interest Rates

You are often given a choice between a variable interest rate and a fixed one.

A fixed-rate uses the market rate at the time of your contract and gives you repayment installments for the entire duration of your loan. No surprises.

A variable interest rate, on the other hand, fluctuates to match the market. This means you pay more when the market rises and benefit when it falls. This comes with a level of uncertainty.

Aside from this, interest rates vary with different lenders. So shop around, find the best rate you can get, and pay attention to origination fees as well. The lower the rate, the less you will pay overall. Similarly, a lower rate will be faster to repay and more manageable.

2. Make the largest down payment possible

Mortgage lenders have different down payment regulations for properties. Homebuyers will sometimes only have enough to pay the minimum amount required to qualify for a mortgage.

However, homeowners are advised to make the largest down payment possible. The reason for this is simple.

Once you identify a house, your interest is calculated based on the amount remaining after subtracting your down payment.

If you pay 10% of the total cost of the property, interest will be applied to the remaining 90%. Conversely, if you pay 40%, interest will be applied to 60%.

Now, let’s assume the house costs $700,000. You pay more interest on 90% than you would pay after putting down a 40% down payment.

Essentially, the larger the down payment, the lower the interest, and the more affordable the mortgage becomes.

3. Amortization matters

Your amortization period is stipulated in your contract. This indicates the amount of time it will take to complete your loan. The shorter the amortization period, the lower your interest, and the more affordable your mortgage will be.

You can shorten your amortization period in two ways:

  • Increasing the frequency of your payments
  • Increasing your installment amounts

The trick to making the most of your amortization schedule is figuring out how much you can pay comfortably when you sign your contract. Why?

Remember, lenders are in business. The longer your repayment duration, the more interest they make. The more interest they make, the more profitable they are. This is why many lenders reject requests to shorten schedules midway through repayment plans. 

Still, some lenders will allow you to double your monthly repayments or make lump sum payments to a specified amount. Read the fine print and get as many details about these stipulations as possible.

Similarly, use these mortgage calculators to compare the figures and see the numbers you would be working with on different repayment periods. 

Get Professional Advice

Each mortgage is different. From the cost of the property to your income to the lender’s terms, a one-size-fits-all mortgage does not exist. 

This emphasizes the need to have a reputable Edmonton mortgage broker on board to look through your options, provide expert advice and even negotiate the best contract terms on your behalf. 

Don’t go in blind; call us today

Are you ready to purchase your first home? Reach out to me directly or start your application here:

Don’t hesitate to contact us with any questions you may have.

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