Looking for the perfect mortgage? Increasing your payments

One of the risks involved in a long term, fixed rate mortgage is that the ability to pay down more debt every month becomes a distinct possibility.

Lenders consider a GDS (Gross Debt Service) ratio in the range of 27 to 35 per cent as the industry standard for first mortgages. Thus, as income increases, the percentage of income allocated to the components of GDS decline (assuming wage inflation outpaces goods and services inflation) and the ability to carry more debt increases.

GDS Calculator

The natural reaction to wage increases in the 1980s was to increase personal debt. In the 1990's, thanks to recession, prudent borrowers looked to reduce debt when on the receiving end of an increase in real wages.

For those less inclined to sock money away in a savings account or fixed-term deposit in order to save for a lump sum mortgage payment, lenders offer the option to increase monthly payments over the life of the term of a closed mortgage. Most institutions offer either 10, 15, 20 or 100 per cent increases in monthly mortgage payments over the term of the mortgage.

While there is generally a minimum amount that the payment can be increased by (i.e., $100), most institutions do not charge for the privilege. In most cases, an annual payment increase is only available on the anniversary date of the mortgage.

Changing the payment schedule	Lump sum payment options