How to Pay Down Your Mortgage Faster

Here are some great tips from CIBC for getting your mortgage paid down and freeing up a large part of your paycheque for other, perhaps more interesting, things:

A mortgage is a big commitment. Most mortgages are paid over 25 years but we have some tips to help you pay yours off faster. Reducing the number of years you make mortgage payments can add up to big savings.

There are several ways to “pay down” your mortgage and get out of debt faster.

1. You can increase your payment amount when you arrange your mortgage, or at any time during the term. This allows you to pay down your principal faster.

For example, if you increased your mortgage payment amount by $170 from $830 to $1,000 you could save almost $48,000 in interest over the entire amortization period of your mortgage. You could also own your home about 8 years earlier.

2. You can make payments more frequently which saves you money in interest charges over the long run as it allows you to pay down your principal faster.

For example if you made accelerated bi-weekly payments of $415 instead of monthly payments of $830, you could save almost $27,000 in interest over the entire amortization period of your mortgage. This would allow you to own your home about 4.5 years sooner.

3. You use your pre-payment privilege to make a lump sum payment. A lump-sum payment is applied directly to your outstanding principal if there is no outstanding interest owing. This saves you money over the course of your mortgage.

For example, if you made a $1,000 lump-sum payment, you could save almost $28,350 in interest over the entire amortization period of your mortgage. This would allow you to own your home about 4 years sooner.

4. You can pay as much as possible at renewal. 

For example, if you chose 5-year, fixed-rate terms, and made a $10,000 lump-sum payment every time your mortgage came up for renewal, you would save about $37,481 in interest over the entire amortization period of your mortgage, allowing you to own your home about 6 years sooner.

Source: CIBC - Mortgage

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What is a Basis Point?

Mortgage people tend to speak in their own lingo to a client, and sometimes that client isn't really understanding what is being said.  One of the most common 'lingo' terms that a mortgage broker will use is Basis Points or BPS (called beeps).  Below is a short, but comprehensive, explanation of what a Basis Point is and how it applies to mortgages and various investment vehicles.


A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument. One basis point is equivalent to 0.01% (1/100th of a percent) or 0.0001 in decimal form. In most cases, it refers to changes in interest rates and bond yields.

For example, if the Federal Reserve Board raises interest rates by 25 basis points, it means that rates have risen by 0.25% percentage points. If rates were at 2.50%, and the Fed raised them by 0.25%, or 25 basis points, the new interest rate would be 2.75%.

In the bond market, a basis point is used to refer to the yield that a bond pays to the investor. For example, if a bond yield moves from 7.45% to 7.65%, it is said to have risen 20 basis points.

The usage of the basis point measure is primarily used in respect to yields and interest rates, but it may also be used to refer to the percentage change in the value of an asset such as a stock. It may be heard that a stock index moved up 134 basis points in the day's trading. This represents a 1.34% increase in the value of the index.

Examine the chart:

The easiest way to convert basis points into a percent form is by simply taking the amount of basis points and multiply by 0.0001 which will give the percent in decimal form. So if you have to convert 384 basis points into a percent, simply multiply 384 by 0.0001. This will give you 0.0384 which is 3.84% (0.0384 x 100).

This can also be done in reverse to find out the number of basis points that a percent represents by dividing the percent (in decimal form) by 0.0001. For example, say the rate on a bond has risen 2.42%, simply take 0.0242 (2.42% / 100) and divide by 0.0001 to get 242 basis points.

Source: investopedia.com

Variable Rate Mortgages (VRM) - Rates

Here are a few things abut the RATE that you meed to be aware of when getting a Variable Rate Mortgage (VRM):

Is there an Initial Discount?
Some lenders and brokers will offer an initial discount, or "teaser rate" to get you to call them. You need to know how much of an initial discount you will be given and for how long (example: 1.5% less than prime for the first 3 months). Don't fall for the teaser rate without knowing what the 'true' rate will be over the long term.

What is the rate AFTER the discount?
While the initial discount seems attractive, it may not be in your best interest to go that route. The key is knowing what the discount will be after the teaser rate is no longer in effect. Sometimes when you average it out over the course of the term, it doesn't work out in your favour. For instance "Lender 1" is offering you a VRM. It's a 5 year term with an initial discount of 1.01% off of prime for the first 9 months. The discount after those 9 months is 0.25% below prime. "Lender 2" is offering you a VRM as well. It's a 5 year term with no initial discount or teaser rate. For the whole term the discount will be 0.75% below prime. When you average it out over the full 5 year term, the true discount with "Lender 1" is only 0.36% below prime, while "Lender 2" has maintained 0.75% below prime. In this example, which is based on actual products available today, a person may think that he or she is getting a great deal by getting an introductory rate through "Lender 1", but in actuality they are getting less than half of the discount that they would receive with "Lender 2".

What is the Interest Rate Lock-in?
Although all product features are important, this is probably the most important feature. Many lenders, especially banks, promise that you will receive the best rate possible when you choose to lock in. But whose best rate? Is there a clear policy in place to ensure that you get the best rate? Was it just a verbal agreement between you and your bank manager who might be transferred in six months and therefore cannot honour your agreement? It is imperative that you have the lock in feature's rate policy in writing, something most major banks can't do. Without a clear policy in place, you are guaranteed nothing…and you could end up with a really high rate when you are ready to lock in. There are some other key questions that you need to ask your lender or broker when obtaining a VRM.

Additional information can be found by clicking here. Thank-you to my friend at Discount Mortgage Canada for this great input.