Personal Finance

Lower Mortgage payments?

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  • Nov 11th, 2013 9:31 pm
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[OP]
Sr. Member
Jan 19, 2009
893 posts
32 upvotes

Lower Mortgage payments?

Question about lowering mortgage payments...

Lets say I get a new mortgage 30 year amortization and monthly payments work out to be $1500 a month...

I get a big bonus at the end of the year and I prepay 30k into my mortgage.

If later on the next year I run into temporary financial problems, does that 30k prepayment into my mortgage lower my amortization, so now if I wanted to I can push my amortization back to 30 years which lowers the monthly payments?
18 replies
Deal Addict
Dec 28, 2008
1352 posts
139 upvotes
Toronto
Very few mortgage products will allow you to do this.
Deal Fanatic
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Apr 4, 2009
7688 posts
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North York
You can change anything when it is time to renew a standard mortgage.

However, they don't let you miss payments (or pay less per month) during a term of a mortgage.

What OP wants is a combination of mortgage + home equity line of credit. As the mortgage is paid off, the home equity credit line increases. So in OP's scenario, OP would withdraw funds against the line of credit to maintain the monthly mortgage payments.
Member
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Mar 2, 2010
428 posts
36 upvotes
Mortgage is typically locked for the term (closed mortgages). During that term, you cannot change amortization or start missing payments (just because previously you had paid more). All this can be done, but would require you to either have an open mortgage or a refinance. Refinance has cost as well. Extra payments into the mortgage should be done with caution, as it is difficult to withdraw that money most of the times.

Extra payment would ensure that a bigger chunk of your regular payments go towards the principle. Hence your amortization would be lower (internally... it will be lower than the amortization period you signed up for, when the mortgage was started).

Get a HELOC, if you are worried about rainy day or "re-advance able mortgage". In this product, your HELOC amount will auto increase as you pay down the principle of the mortgage. So during the rainy day, you can take money from HELOC and pay it towards the house (note that people typically use re-advance able mortgage for a different purpose). With the bank, no paperwork is done and amortization is not changed.

t
Deal Addict
Apr 4, 2013
1274 posts
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Some mortgages will allow you to skip payments if you have pre-paid your mortgage in advance. It helps you out if you find yourself in a temporary financial bind. Keep in mind that doing this also wipes out any interest savings that you may have earned by the earlier pre-payment.

If you have concerns regarding income flows, it is really important for you to not only look at amortization, but also the mortgage term, as it is the mortgage term that locks you in for a certain period of time. If you are at risk of running into financial problems during the term of your mortgage, another option is to place your bonus into an emergency fund instead of prepaying your mortgage.
Deal Addict
Aug 14, 2007
2317 posts
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Waterloo
What I would do if you are worried about that is instead of using up all the 30k rihgt away use maybe 1/2 or 2/3rds of it and then put rest in HISA and increase your payments by whatever is allowed (typically 15-25%)
Or go with a 35 year ammort and pay it off as a 30 year, then if you run into trouble could put it back to 35
Deal Fanatic
Mar 24, 2008
5584 posts
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Toronto
RBC allows you to skip payments (up to 4 months), if you have prepaid that amount before. You should ask your lender as it depends on the terms of your mortgage.
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Feb 28, 2005
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Montreal
OP, check out National Bank's All-in-one product. It's essentially a mortgage line of credit.
Koodo & Tangerine customer since 2006
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Dec 26, 2007
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ksgill wrote:
Nov 8th, 2013 9:53 am
RBC allows you to skip payments (up to 4 months), if you have prepaid that amount before. You should ask your lender as it depends on the terms of your mortgage.
+1 Ask your lender
Member
Jan 21, 2013
421 posts
35 upvotes
Halifax
I have a question to ask about my mortgage also. I borrowed for my home at 3.1%. I have the money in the bank to cover mortgage but did not want to tie up my money, so it's in GIC at 1.7%. Whaat I wanted to do invest to get 6%. But I want it as secure as I can get it. I want this because at 6% it will cover my payment, which means my house will be virtually free.
Deal Addict
Nov 21, 2007
2486 posts
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Scarborough
enter wrote:
Nov 7th, 2013 10:14 pm
Question about lowering mortgage payments...

Lets say I get a new mortgage 30 year amortization and monthly payments work out to be $1500 a month...

I get a big bonus at the end of the year and I prepay 30k into my mortgage.

If later on the next year I run into temporary financial problems, does that 30k prepayment into my mortgage lower my amortization, so now if I wanted to I can push my amortization back to 30 years which lowers the monthly payments?
Not allowed especially if yours' an insured (CMHC) mortgage. The rule is less-time-gone-by. That means your "2yr old mortgage" can have the amortisation be increased to 28yr.

The best solution is to apply for a line of credit, secured or unsecured, depending on the equity, of similar or equal amount for that "just in case".

:facepalm: at previous advice....
Deal Fanatic
Mar 24, 2008
5584 posts
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Toronto
George9999 wrote:
Nov 10th, 2013 7:32 am
I have a question to ask about my mortgage also. I borrowed for my home at 3.1%. I have the money in the bank to cover mortgage but did not want to tie up my money, so it's in GIC at 1.7%. Whaat I wanted to do invest to get 6%. But I want it as secure as I can get it. I want this because at 6% it will cover my payment, which means my house will be virtually free.
So you borrowed at 3.1% (mortgage) and invested your money in a GIC at 1.7%. Awesome. You "wanted" to make 6% but didn't want to take any risk. Jeez, did you ever take basic math in school?
Member
Jan 21, 2013
421 posts
35 upvotes
Halifax
ksgill wrote:
Nov 10th, 2013 9:39 am
So you borrowed at 3.1% (mortgage) and invested your money in a GIC at 1.7%. Awesome. You "wanted" to make 6% but didn't want to take any risk. Jeez, did you ever take basic math in school?
Did you ever learn to read in school? I never said no risk...said secure as I can get with 6% return. I didn't want to own my home but be broke. Want to have steady cash flow with my 300k.
Deal Addict
Jun 16, 2009
1560 posts
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Geroge
Can you please share the details of the investment that can yield 6% securely . I have tried investing in different avenues and lost my principal as well as I am a noob when it comes to investing . Latest I found is that ICICI bank offering 6% on fixed deposits for 5 year but it cannot be closed prematurely .
http://www.icicibank.com/nri-banking/RH ... s.html#T-5
George9999 wrote:
Nov 10th, 2013 7:32 am
I have a question to ask about my mortgage also. I borrowed for my home at 3.1%. I have the money in the bank to cover mortgage but did not want to tie up my money, so it's in GIC at 1.7%. Whaat I wanted to do invest to get 6%. But I want it as secure as I can get it. I want this because at 6% it will cover my payment, which means my house will be virtually free.
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