Home & Garden: August 2014

PAYMENT FREQUENCY:
Semi-monthly = 24 payments per year
Accelerated bi-weekly = 26 payments per year
Accelerated weekly = 52 payments per year

Savings through Accelerated Payments:
* A shorter Amortization Term saves you money because you will pay less interest costs over the life of the mortgage.
* Save thousands of dollars in interest costs - while paying down your mortgage sooner!
Example:
- save over $62,000 by paying $1,454 Accelerated Bi-weekly for 21 years
- save over $63,000 by paying $727 Accelerated Weekly for 21 years
- no savings by paying $2,908 monthly for 25 years

Basis for Example:
Mortgage Amount: $500,000.00
Interest Rate Type: Fixed
Payment Amount: $2,908.03
Payment Frequency: Monthly
Amortization Period: 25 years
Interest Term: 5 years
Interest Rate: 5%

INTEREST COSTS:
Term Interest Cost = interest cost on a loan for a specified term (e.g. total interest at 4% fixed rate for 5 year term mortage)

Amortization Interest Cost = total interest cost of the loan for the whole amortization period (e.g. total interest for the entire 25 year amortization period)

VARIABLE INTEREST RATES
Variable Interest Rate = interest rates can change during the mortgage term depending on changes in market interest rates (bank’s prime lending rate)

Advantages of variable interest rate mortgages:
- interest rates on variable rate mortgages are often lower than fixed interest rate mortgages

Disadvantages of variable interest rate mortgages:
- unknown future, difficult to predict, changes with the politics, global news, war, etc.
- between 2000 and 2009, the Bank of Canada bank rate changed from 0.5% to 6%

FIXED RATE MORTGAGES
- interest rate is constant throughout the term (e.g. fixed 4% interest rate over the entire 5 year term)

CLOSED MORTGAGE
- fixed term mortgage

Advantages of Closed Mortgage:
- interest rates are generally lower than for open term mortgages
- savings on interest costs
- payoff your mortgage faster

Disadvantages of Closed Mortgage:
- prepayment charge if you renegotiate your interest rate
- prepayment charge if you prepay more than what is allowable

CONVERTIBLE CLOSED MORTGAGE
- same benefits as a closed mortgage, but can be converted to a longer, closed term at any time without prepayment charges

OPEN MORTGAGE
- open term mortgage

Advantages of Open Mortgage:
- sound decision if you are planning to pay off your mortgage in the short term (10 years or less)
- can be repaid either in part or in full, at any time, without prepayment charges
- can be converted to any other term, at any time, without prepayment charges

Disadvantages of Open Mortgage:
- interest rates are generally higher than closed mortgages because of the added pre-payment flexibility

FIXED MORTGAGE RATES (Aug 2014)
Convertible:
6 Month   3.140%

Closed:
1 Year     3.140%
2 Year     3.040%     (can i get 2 year mortgage contract??, almost same as prime rate)
3 Year     3.750%
4 Year     4.540%
5 Year     4.940%
7 Year     5.750%
10 Year     6.750%
25 Year     8.750%

Open:
6 month     6.300%
1 year     6.300%

VARIABLE MORTGAGE RATES (Aug 2014)
Closed:
5 year     RBC Prime Rate + 0.000% ---> 3.030%
(based on today's Royal Bank of Canada Prime Rate of 3.000%)

Open:
5 year     RBC Prime Rate + 1.000% ---> 4.030%
(based on today's Royal Bank of Canada Prime Rate of 3.000%)


Today's Royal Bank of Canada Prime Rate (08 August 2014):
RBC Prime Rate     3.000%
Date of change: 09 Sept 2010
(subject to change without notice, at any time)

*** Rates are applicable to residential mortgages only

MY MORTGAGE PREFERENCE:
Closed Mortage --> 25 years amortization
Variable Interest Rate --> 3% Prime Rate ---> get 2 year fixed rate @ 3.040% ??
Accelerated Weekly --> save over $63,000 by paying $727 for 21 years