If I told you that a simple change in the Bank of Canada Prime Lending Rate could mean $41,000 in your pocket instead of your banks, would you believe me?

The recent reduction in the Bank of Canada Prime Lending Rate by 1/4 of a percent will most likely mean a reduction in open mortgages or lines of credit. But don't worry—you can also benefit if your mortgage is coming up for renewal.

Based on a $500,000 mortgage at an interest rate of 5.25%, a .25 % reduction in the mortgage rate will mean a net payment savings of $71.57 per month.

No, your first thought may be, “I can take that $71.57 and have a dinner out or maybe a gas tank,” but before you do that, consider this.

If you instruct your bank to keep your mortgage payment at the original payment level of $2,979.59 instead of the lower $2,908.02, you will not notice the $71.57 difference if the bank had not reduced its lending rate by .25%.

If you kept the mortgage payment at the original payment left of $2,979.59 and carried your mortgage to the full amortization term of 25 years, you would first see that your mortgage would be paid out roughly 398 days earlier. You would have saved over $41,000 in total interest charges!

Now, I based this analysis on someone making monthly mortgage payments, which, while suggested by the bank, you should inquire about making bi-weekly mortgage payments instead of monthly (as most of us receive a pay cheque every two weeks). While it is true, you will be making two extra mortgage payments per year (26 in total vs 24 if payments are twice monthly).

But here are the savings in interest and mortgage term if you make bi-weekly mortgage payments versus monthly mortgage payments:

• On the same $500,000 mortgage at the 5.25% mortgage rate, 25 years amortization period, by making bi-weekly mortgage payments of $1,373.60. The .25% drop in the interest rate will reduce the payment to $1,340.68 (a reduction of $32.92 every two weeks). If you instead keep your payment at the higher $1,373.60, you will save $41,048.36, along with your mortgage being paid 406 days earlier.

In closing, first, make sure you make your mortgage payments at least bi-weekly or weekly. Second, with the .25% reduction in the mortgage interest rate, tell your bank to keep your mortgage payment at the higher amount, and “cha-ching,” you will save over $40,000, not to mention shedding more than a year off the total mortgage term.

One suggestion is to contact our office before you renew or take out a new mortgage so that we can provide you with financial planning so that you can maximize interest savings and reduce the overall mortgage term.

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