Going Places

Life Insurance vs. Mortage Insurance While you're paying off your home, say no to mortgage insurance and opt instead for a life insurance policy. As mortgage insurance is tied to the amount owing on your house, over the years the value of the policy decreases as you pay off the loan. With life insurance, you choose the value of the policy and that doesn't change. Should something happen, life insurance will pay out the full amount, which can be used to pay off the mortgage in addition to other debts, as well as pay for funeral expenses and support the family. Check out CAA life insurance options at www.caalife.ca. 3 WAYS TO PAY LESS IN THE LONG RUN PAY MORE OFTEN: SHORTEN YOUR AMORTIZATION PERIOD: PUT MORE DOWN: 20% down (20-year amortization) YOU PAY: $438,500 5% down (20-year amortization) YOU PAY: $464,470* 10% down (20-year amortization) YOU PAY: $455,820 Accelerated bi-weekly payments (20-year term & 10% down) YOU PAY: $433,660 Monthly payments (20-year term & 10% down) YOU PAY: $455,820 10 years (10% down payment) YOU PAY: $372,840 20 years (10% down payment) YOU PAY: $455,820 30 years (10% down payment) YOU PAY: $548,740 ($300,000 property; interest rate of 5%) *Totals include base amount and interest. All totals approximate. istock W I N T E R 2 0 1 5 | G O I N G P L A C E S 51 HOME SWEET HOME e Mortgage Race Strategies for coming out ahead in the home-buying game by Scott Messenger I spent last summer focused on two things: running and getting a mortgage to buy a new home. e deeper I got into both, the more the mortgage seemed like one of life's long-distance runs. ough maybe not a mar- athon. More like a half-marathon. Or a 10K. In other words, it's achievable. And as with a run, anyone who has made the right prepara- tions can manage a mortgage. But you do need to know the lay of the course, and proper tech- nique is important. Putting it all together and finding a pace that suits you – and even shaving off time as you near the finish – is easier than you think. Warm Up Right Prep for the race by educating yourself about the basics. A mortgage consists of two main elements: the principal, or loan amount excluding interest, and the interest. With interest, there are two ways to go: fixed or variable. With a fixed rate, you pay a percent- age that is locked in for a predetermined period whereas a variable rate rises and falls with the Bank of Canada prime lending rate. Which you choose depends on your appetite for risk – some people breathe easier knowing their interest rate won't change for a set period, while others are willing to take a chance on the prime rate dipping. Get a Head Start The more money you put down before the starting gun fires, the sooner you'll cross the finish. "at means you'll pay less overall," says Ken Wallis, manager of customer sales and retention with Bridgewater Bank. Take a prop- erty worth $300,000 and a mortgage secured with the minimum allowable down payment of five per cent. Pay it monthly over 25 years at an interest rate of five per cent, and you'll pay about $212,000 in interest over and above the price of the property. Putting more down, say 20 per cent (what's known as a conven- tional mortgage), reduces the total interest to about $179,000. An online mortgage calculator (try Bridgewater Bank's at www. bridgewaterbank.ca) can help map things out. Shorten the Course You can save even more by shortening your amortization period, which is the time it takes to repay your mortgage. For example, by increasing your pace from monthly to "acceler- ated biweekly" (the monthly rate divided by two, paid 26 times a year), you'll finish three years earlier and pay around $30,000 less in interest on that $300,000 home bought with 20 per cent down. Committing to a shorter amortization at the start – say 20 years – will save another $30,000. Sprint to the Finish When you feel you've got the reserves for it, sprinting can shave a lot of time – and interest – off a mortgage (particularly when the course is that much easier, thanks to today's histori- cally low interest rates). "Lenders often allow a percentage of the principal to be repaid annu- ally," says Wallis. "Applying around 15 to 20 per cent of your original mortgage amount per year as a principal payment amount can significantly decrease your interest costs in the long run." Completely repaying a mortgage is one of life's milestones. It can seem daunting at the outset, but it does come with a finish line and a feeling not unlike that fabled runner's high. With the right approach, you'll cross more financially fit and nimble than ever – and much sooner than you expected. GP Paid off your mortgage? Congrats! Now go ask your insurance broker about the mortgage-free discount available with most home insurance policies.

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