Over the past number of years banks have come up with a rather confusing set of payment frequency options that have left some mortgage clients a bit disappointed 5 years down the road.

Rather than the Amortization crushing ‘Accelerated bi-weekly’ plan which a quality Mortgage Broker will discuss with you, clients left to their own devices run the risk of opting for simply ‘bi-weekly’ payments.  Here is the math;

Let’s use a $100,000 mortgage amount (to make working out your own numbers simpler) with a 25 year amortization, a 2.74% interest rate and a 5 year term.

Monthly Payments: $460.01
Ending Balance 60 months later: $85,043.18

Now let’s calculate bi-weekly payments and the balance remaining at the end of the 5 year term.

Bi-Weekly Payments: $212.18
Ending balance 60 months later: $85,043.60

The balance is 42 cents higher.  This is because you did not effectively pay anything extra over the 60 months to the lender.  The sum of the annual payments is identical.  Now let’s insert

the word ‘ACCELERATED’ (bi-weekly) into the equation.

Accelerated bi-weekly Payment: $230.00
Ending balance 60 months later: $82,563.13

Ah-ha, now you have a $2,480.47 lower balance, and you have paid $163.87 less interest over the 5 years.  Excellent!

How did this happen?  When one opts for ‘accelerated’ in the above scenario, the payment increases by $17.82 per payment, or $463.32 per year.  For a total of $2,316.60 in additional funds going straight to the mortgage balance.

The big picture is improved as well, as you have effectively lowered your amortization from 25 years to 22 years and 5 months.

Shaving 2.5 years off a 25 year mortgage might not seem huge, but in 22.5 years it surely will make you happy.  Imagine having $460.00 more per month (per $100,000 of mortgage balance) to play with for 2.5 years.

If you started with a $300,000 mortgage, then we are talking about $1380.02 per month X 30 which is a total of $41,400.60.  All from one word ‘accelerated’.

This question arises on a near daily basis within our social circles… Answer:  Today is the right day assuming one has found the specific property that works for them on all levels.

If the conversation is about a property which one plans to own for at least the next few years, then yes, the right time to buy is today.

Over a 7-10 year horizon the day-to-day, even the month-to-month gyrations of the market will tend to resemble those of a small yo-yo on a large escalator.  Yes there are some ups and downs but the lows often do not drop below the second last high. This is true of nearly any major urban 25 year chart of Real Estate Values.

There are some key considerations that will dictate not only the continued value, but perhaps more importantly your own ability to stay put for that magic 7-10 year timeframe:

• Home location
• Layout
• Age
• Size
• Recreational amenities
• Schools
• Distance from workplace
• Potential basement suite revenue

The list goes on…

Getting all of these variables aligned is something that takes dedication on the part of the both the buyer and Realtor.  The hunt itself can easily consume a few weeks or more, and for some may result in dozens of viewings.  This is more than enough to juggle without also trying to ‘time the market’ on that perfect home.

Speaking of timing; consider allowing for a small overlap during which you have access to both the current residence as well as the new one.  Being able to install new flooring throughout, complete interior painting, or upgrade kitchens and bathrooms, without having to live in the middle of the disruption is well worth an

extra month of rent or the marginal costs of bridge financing.  The costs involved are surprisingly lower than most clients expect.

Keep in mind during your search that the MLS #’s are an imperfect indicator of what is happening today in the market, as in literally ‘today’.  MLS data reflects purchase contracts that were negotiated 30, 60, 90 or even 120 days prior to the completion date which was itself in the previous months report.  In other words, by the time the MLS data indicates a trend one way or another, said trend has in fact been in motion for as long as 6 months and could be either reversing or ramping up further.

Where then to get the most accurate data? Talk to frontline folks, Realtors, Brokers, Appraisers, etc. for a better handle on up-to-the-minute trends.  Ask an Industry Expert.

Short term fluctuations in values and/or interest rates are themselves not the key factors in many peoples decision to buy. Instead it is finding that perfect combination of all the factors that create a home within a community and the realisation that homeowners win in the long run by owning, not by sitting on the sidelines.

It is all about finding a place you can call home for the duration. To be able to plant roots and become a part of a community.  Home ownership will undeniably continue to be a part of living the Canadian dream.

Perhaps the (short term) timing will feel imperfect, as it did for presale buyers in 2007, whose completion dates were set for Spring 2009.  However, a few years later most will be glad that they bought when they did.  In fact many were smiling again as soon as the Spring of 2010.

Home ownership remains the one true forced savings plan. It is one of the best investments we make socially as it provides an individual and/or a family with a certain sense of security, stability and community.

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