1. Shop around for a mortgage interest rate

The following table shows how much you could save on a mortgage by negotiating your interest rate. In many cases, you can negotiate a 1% rate discount if you have a very good credit rating.

Potential savings over five years with a mortgage rate reduction by mortgage amount

Assumptions: The mortgage payment decreases as the rate decreases. The initial interest rate is 4.5% per year. The term of the mortgage is 25 years.

2. Shop around well in advance

Whether you’re looking to renew your mortgage or get a new one, financial institutions will often give you three months in advance to shop around. What’s more, some institutions will allow you to benefit from the better rate between the pre-negotiated rate and the rate available at the time of the new loan.

If you choose a variable rate mortgage, the rate won’t be guaranteed, but the formula for calculating it might be. For example, you could get the financial institution’s prime rate minus 1%, in which case the prime rate may fluctuate, but the formula still applies.

Insight

Convincing the lender to lower the interest rate

Check lender websites to find out what rates are being offered for the terms and conditions you’re interested in. Note down the best rates.

When you go to the financial institution, explain that you’re starting your search and you’re going to shop around to get best available rate. Want to make things easier for yourself? Deal with a mortgage broker.

End of the insight

3. Amortize your mortgage over a shorter period

The faster you pay down your mortgage, the less interest you’ll pay. This can save you a lot of money.

For example, if you repay a $200,000 mortgage in 20 years instead of 25 years, you would save about $25,250 in interest, assuming an interest rate of 4%.

To be more precise, we should consider the value of money over time. The total amount of interest paid is not the only thing you should consider: ask yourself whether if there’s any benefit to be gained by doing this.

4. If you obtain a lower interest rate, consider continuing with the same payment amount

Let’s assume you have a $200,000 mortgage, are paying 5% interest and will be renewing your mortgage in the near future at a rate of 4% with an amortization period of 20 years.

You are currently paying $603 every two weeks. The 1% rate decrease will bring your payments down to $555. If you decide to continue paying $603, you will save $11,169 in interest and will pay off your mortgage 2.3 years earlier.

5. Round up your mortgage payment

Let’s say your mortgage payment is $483 every two weeks. Why not pay $500 instead, if you can. You’ll save a lot of interest on your loan!

Savings from rounding up your payment on a $200,000 mortgage at an annual rate of 4%
Payments every two weeksNumber of years to repayInterest paidSavings
$48325 years$114,139$0
$50024 years$106,918$7,221
$52522 years$97,877$16,262

6. Make lump-sum payments, if possible

Let’s assume you owe $200,000 at an annual interest rate of 4%. You plan to repay the loan over 25 years. If you prepay $1,000, you’ll save $1,657 in interest over the life of your loan.

7. Don’t pay for mortgage insurance twice

Mortgage loan insurance is insurance that protects your lender in the event you’re no longer able to repay your loan. You pay for the insurance in a single instalment, but you can add this cost to your mortgage loan (except for the tax).

When you change lenders, if your loan amount and amortization period don’t increase, you could avoid paying a new mortgage insurance premium. Ask your former lender for the insurance certificate number and give it to your new lender so that the new lender knows you’ve already paid for mortgage insurance.

8. Limit the penalties

Financial institutions generally permit you to repay a portion of the borrowed amount without penalty. Before taking steps to break your mortgage and paying the applicable penalty, see if you can pay the permitted amount without penalty.