Brampton and Ontario Mortgage Blog
Refinancing Tips for Bad Credit Mortgages
November 12, 2014 | Posted by: Paul Hunjan
Debt can seem like a life sentence, but it doesn't have to be. I help people secure bad credit mortgages, mortgage refinancing, and mortgage renewals and for those seeking to get out of debt fast, I suggest finding a mortgage with some flexibility on payment options, such as:
1. Round up - An extra $10.00 doesn't sound like a lot but if you add it to your mortgage payment each month you'll definitely notice the difference it makes over time. Adding even a small amount to your repayments is an effective way to reduce your mortgage interest.
2. Pre-payments - All lenders offer some kind of prepayment (or extra payments) that is applied to the principal loan amount. Find out what your lender allows and try to maximize on that allowance.
3. Double up - Many lenders allow you to make additional payments on your mortgage. These amounts are applied to the principal only and will reduce your mortgage balance. Some will even allow you to skip a payment if you have made an extra payment recently. Skipping a payment is handy in a crisis but it's best not to utilize this option if you are trying to shorten the life of your loan.
4. Switch from monthly to bi-weekly or weekly payments - If you opt to pay your mortgage payment bi-weekly or even weekly, instead of monthly, you will automatically save thousands of dollars in interest. Example: the monthly repayments for a $100,000 mortgage at 8% interest amortized over 25 years would be $736.21. If you switched to bi-weekly on the same mortgage your payments would be $381.61 - or half the monthly payments, however over the life of the loan the savings would end up being $30,464 in interest because over the year you will make one extra payment.
5. Annual boost - Try to increase the amount of your payments to the total maximum you can afford each year. If it's too difficult to make the increased repayments or you encounter circumstances that prohibit this from happening, most lenders will let you reduce the amount back to the way it was before.
6. Refinance - Refinancing to a cheaper rate can make a big difference in the life of your loan. Make sure you do your research so you can determine if the cost for breaking the contract outweighs the savings benefit.
7. Steady Flow - In a nutshell, if the rates drop don't lower your payments. You should try to keep your repayments at the same level each month.
8. Lump-sum Payments - Any extra money that comes your way such as inheritances, monetary gifts, work bonuses or RRSP refunds - use those towards your mortgage to reduce the principal and cut down on interest.
9. Early Renewal Option - A mortgage with an option for early renewal allows you to renew your mortgage before the maturity and lock-in low rates for a new term. This is a handy option when interest rates start to rise and you are locked into a mortgage that won't mature for a few more years.
10. Earn More, Spend Less - Consider increasing your mortgage payments if you get an increase in your salary. We all love having an increase of disposable income but you will benefit in the long run, by reducing your debt.
If you have questions about bad credit mortgages or want to get started, get in touch.