The faster you pay the more you save on mortgage costs
Interest can double the price of your home Make extra payments whenever possible
ROB FERGUSON
STAFF REPORTER

Chances are you've never met Rick Mathes, but he's offering some "been-there-done-that" money-saving advice for first-time homebuyers.
When shopping for a mortgage, think long and hard about how you plan to pay it back.
The longer you take, the more it costs. In fact, interest costs alone, over the life of a long mortgage, can tally almost as much as the house.
Such thoughts are an occupational hazard for Mathes, a mortgage expert whose official title is vice-president of real estate secured lending at TD-Canada Trust.
"For most people, it's the largest financial transaction of their lives," he says, recalling his own first home-buying experience years ago.
"I was traumatized. I thought, `I'm going to be paying how many tens of thousands of dollars in interest?'"
Here are the cold, hard numbers:
A 25-year mortgage on a $300,000 entry-level house costs about $200,000 in interest at current rates. The combined total: $500,000.
That's why Mathes hunkered down, taking advantage of typical mortgage features like doubling his regular payments and paying down a chunk of the principal — the original amount borrowed — every year. Many lenders allow customers to pay down up to 15 per cent of the principal once a year, usually on the anniversary date.
"If you do that, you can turn a 25-year mortgage into about five years," says Mathes, with the unsurprising caveat that "not many people have the wherewithal to do that."
Present company excepted, of course.
"I got rid of mine in about six years," Mathes notes. "But then you're looking at renovations or moving up."
Marion Nader bought a condo last fall and is hoping she'll soon be able to afford some extra payments, but it's not easy.
"I know the sacrifices I make now will pay off," says Nader, who lived in Woodbridge before moving to the King and Bathurst St. area to be closer to work.
But with rising hydro bills, property taxes and the recent RRSP deadline all pinching her pocketbook, Nader is finding home ownership "a little bit more than what I had anticipated."
Still, many people are finding the cash.
At least one bank reports the average payoff period for mortgages has declined to 18 years, as homeowners become better educated and take advantage of additional pay-down privileges.
One strategy is to make sure your mortgage payments — which should tally no more than one-third of gross family income — are manageable, then to have the discipline to put any extra cash down on the principal.
Given the way mortgages are structured, the highest interest costs are in the early years.
Here's how it works: The repayment plan for a mortgage is based on an amortization period — the length of time you plan to take to pay down the loan. Typically, it's 25 years. Every weekly or monthly payment retires more of the loan's principal, so the interest charges, therefore, become less and less.
In the first five years of a mortgage, a whopping three-quarters of your regular payments typically go to interest and just one-quarter to the principal.
Asked for his top advice to first-time homebuyers, Mathes says don't automatically opt for a five-year mortgage term with a fixed interest rate.
It's a traditional choice for many rookie buyers, who like the idea of knowing how much their mortgage payments are going to be.
Owning a home typically comes hand-in-hand with unexpected cash outlays for home repairs and maintenance, not to mention things like decks, new furniture and — maybe —starting a family.
"The most classic mistake is they go in the five-year mortgage and, two or three years later, everything changes and they wish they weren't locked in," says Mathes.
But he acknowledges that the popoularity of five-year terms has increased in the past few months as rates crept up. That's because homeowners have been locking in on rates before they sneak higher, a switch from the past few years of declining rates, when the best option for many people was a variable rate mortgage, in which rates rise or fall with the market.
As an example, he notes that a $200,000 five-year-mortgage at 7.95 per cent, taken out in December 1999, would have cost $33,000 more in interest than a variable rate mortgage, because rates declined over that period. Of course, the interest cost would have been higher had rates risen instead.
"If you have risk-tolerance, you should play the odds," says Mathes, adding that studies by a number of banks over recent years suggest short mortgage terms and their typically lower rates are more economical in the long run.
Many homebuyers are shying away from variable-rate mortgages these days. The flexible-rate plans account for just 20 per cent of sales, compared with 40 per cent six months ago at TD-Canada Trust, Mathes says.
By the way, he also advises making the maximum RRSP contributions every year and using any tax refund to pay down the mortgage.
He does not recommend raiding an RRSP nest egg to come up with a down payment, unless you are a disciplined saver with a good cash flow to replace it later. But he says "it's an individual decision." While getting a big enough down payment to avoid having to purchase government-required mortgage insurance