Understanding debt & lending - CBC Radioactive series Part III

Yesterday we addressed the often complex world of lending. Unlike the old days, we all require the bank's help in purchasing a car, home and more. But what's the best option and how do you save, and I might add, significant dollars when you're asking for a lender's support?

When it comes to mortgages, one of the largest savings over the life of your mortgage can be had by simply adjusting "when" you pay your payment. For example, you could save $37,948.49 by simply paying bi-weekly (every other week) as opposed to monthly over the life of your mortgage. The reason? You're making an extra payment each year and that small amount adds up to a huge savings. (I'm assuming a $250,000 mortgage with a 5 year fixed rate at 5.55% using a 25 year amortization.)

The second most significant savings can come from negotiating the rate of your mortgage with your lender. I know, many Canadians fear negotiating, but take a deep breath and simply ask if you can receive a reduction on the posted rate. More than not, your banker will be happy to oblige. Plus, consider that the banker needs your business as well and with the 5 major banks offering generally the same products and rates, they want your business.

Assuming the same numbers as in my example above, over the life of a mortgage (25 years) at 5.55% (today's posted rate for a 5 year fixed) compared to a reduction of say 4.25%, you would save $41,256.00 or $1,650 per year (assuming all remained constant). If someone were offering you over $1,600 per year just for asking, wouldn't it be worth your while to give it a try?

With such a vast topic, we ran out of time yesterday covering the subject of debt. Tune in today for part two and of course, visit the CBC site for past segments if you've missed one at http://www.cbc.ca/radioactive/kelley-keehn.html