Changing the amortization on your mortgage

[torontokids]

I am looking for some advice from people who have done this themselves. I am looking at ways to reduce our mortgage payments because they are quite high. We have been living here and paying off our mortgage aggressively for the last 8 yrs but now have started looking into changing the amortization on our mortgage (currently 12 yrs left and we could move this to 20 or 30 yrs). A 30 yr amortization would decrease our payments in half. We don't need them to be that low as we are managing with the high payment but this would allow more flexibility for us as I go on mat leave. We would pay more than the required payment as we have been doing. Anyone ever done this? What are the negatives aside from the obvious: have a mortgage longer and as a result pay more in interest? My mom mentioned something about the first yrs on a mortgage have higher interest payments but I am not sure if this would be the case as this is just a renewal. I know you are not mortgage brokers...just seeing if anyone has had this experience. We are young (35 yrs old) so we are not near retirement or anything but have 3 young kids and live in Toronto. All our expenses are essentially fixed and we don't live an extravagant lifestyle (just one car, basic cell, no home phone). We are also looking into cutting some expenses but we can really only cut our basic cable which isn't a huge savings over the long term.

[Monday 2 Friday Mama]

If it were me, I would try really hard to avoid doing what you're considering. It's almost impossible to save for retirement and pay a mortgage and raise a family - there's only so far that a paycheque can stretch. How many years do you have left on your mortgage? Play with the numbers in other ways (we recently renewed our mortgage and went with a variable rate instead of a fixed rate - saved us a couple hundred a month) to see if you can buy yourself some fluidity without shackling yourself to the mortgage monster for any longer than necessary. Maybe selling and moving to a satellite city would save you some money. Again, you'd have to run the numbers (are you spending all your savings in commute costs) but it might be worth it. I live in Ottawa (another expensive city) Friends of mine moved to Cornwall (1 hour up the road) where housing is much cheaper. Yes, their commute time is knarly and an 8 hour day is now 10-11 hours, but their house is 200 K cheaper. Another suggestion, I'm not sure if you're socking money away in RESP's for your kids. If you are, and you don't have the fluidity to do so - stop. I used to work in finance and I saw/see a lot of parents who are hurting themselves financially trying to do more than their income permits all in the name of helping their kids. Your child can borrow (if need be) for their education, but you can't borrow for your retirement. There are many ways that we as parents can help our kids complete their education while incurring as little debt as possible: live at home,.contribute what we can financially, but at the end of the day we have to make sure that our financial future is secure - and being mortgage free is the first step to being able to save/plan effectively for retirement - do whatever it takes to get there, and don't do anything to undo all those years you've invested in aggressively paying down your mortgage. It's like running a marathon - you're half way through, your muscles are burning and you would kill to just stop now. Hang in there - stay the course - every payment that you make gets you that much closer to the finish line. JMTC

[Artsand crafts]

I'm currently working on our mortgage to increase our cash flow and make a sound investment. The safest bet is just to get a good mortgage broker to get the lowest interest possible in the market (they work for free in your end and get paid by the financial institution that will be working with your mortgage). My mortgage broker has secured 2.59% from current 4%. MB can explain you the savings you could have without changing the amortization. It could even be a combination of reducing your interest and increasing the amortization, maybe you only need to extend the amortization a few years to have the cash flow you need. The mortgage broker can do this exercise for you if you tell how much extra cash you need on hand. I have an excellent mortgage broker if you want the contact info. It is a very intelligent woman with great financial knowledge and very patient to explain all angles.

[Wonderwiper]

IMO...it would not be a sound long term plan to move from a 12 year mortgage to a 30 year mortgage. Having your mortgage paid off when you are 47 years old would be amazing and you would still have time after that to save for education and retirement!!

[Artsand crafts]

Maybe she does not need to extend the mortgage to 30 years, maybe she only needs to extend it a couple of years or not even change her amortization at all if she can secure a much lower interest rate compared to the one she currently has.

After analyzing the numbers you could not for sure. I also agree that maybe you can also look into cutting on the RESP's. If you look after your retirement first you could have more chances to help your kids then, if needed. You can also continue paying RESP's and even increasing the payments to catch up after you are financially better.

[Lee-Bee]

This is not my area of specialty but it is my husbands. All I can say is if you change anything read ALL the fine print. Many mortgages only allow to you pay a bit above the amount you need to pay monthly. Often you CANNOT just pay as much as you want to lower your amount owing faster. So if you change it to a 20 or 30 year mortgage it may very well take you 20-30yrs to pay it off since they want to make all the interest they can off you and make it so it takes that long.

This is something my husband always ensures when we do the mortgage as he likes to pay extra.

[Mama2boys]

Have you heard of the Manulife One? In your situation, it sounds like an ideal solution. I'd recommend checking it out.

***Not spam, I swear!***

[torontokids]

I have been talking with my current mortgage company as we have been very happy with them. They have offered us 2.59% down from our current 3.09% so we will for sure be changing our rate as it makes sense even with the small penalty. We used a broker when we found our current company and she was very helpful. She actually made sure we had a mortgage that allowed us to pay off as much as we like (I think we do have a cap of a lump sum of $85, 000 per yr, like that would ever happen). My sister is actually a mortgage broker so I have been asking her as well, however she is quite young and just obtained her first mortgage a few months a go. I was just looking for other opinions as well. My husband would like to change our rate and not change our amortization at all. After all, we can do this down the line if we really need to. I just didn't even realize this was an option! He is right in that it really makes sense to become mortgage free just as our kids would be starting university if possible.

[Artsand crafts]

I think you could be able to get better than 2.59%. We are getting that same rate, but it is because the investment we will embark on, our mortgage broker could get us a better rate if we were just refinancing the house. Shop around before you do the refinancing. Our new lender will allow us to pay up to 20% of the value of the mortgage per year. A good mortgage broker would look into it for you if that is part of your goal (getting rid of the mortgage faster)

[ahnys]

If you've been paying off your mortgage aggressively, does that mean you've been paying more than your required minimum principal and interest payment?

First, call your bank and ask them what your minimum payment must be. Next, ask them what your CONTRACTUAL AMORTIZATION is. Just because you have 15 years left on your mortgage at the current payment you are making, it does not necessarily mean that you are under obligation to continue paying it off that aggressively. Honestly, it may be as easy as someone moving your payment back down to what is required to go back to your original amortization. Not as big a deal as you might think!