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My Mortgage Blog

Do you dream of being mortgage free? The new year is usually a time when people review their finances and, if they have debt, create a debt reduction plan. It often begs the question whether extra money should be invested or go toward debt reduction. I'm a huge proponent of monthly increasing cash flow, and paying off your mortgage or other debt could be the best investment you ever make!

Check out my tips below to save some serious cash and become mortgage-free faster! 
 
Accelerate your payment frequency

This is a popular strategy. If you’re making monthly payments on a $300,000 mortgage with a 3% interest rate, amortized over 25 years, it will cost you approx. $125,920.44 in interest. By increasing your payment frequency to accelerated bi-weekly payments, you will shave nearly three years off of your amortization schedule, and save approx. $16,058.57 in interest. An accelerated biweekly payment adds one additional payment onto your mortgage each year, which goes directly to the principal. There's no secret sauce, it's just math!
 
Round up your mortgage payment

This is pretty painless. Every dollar counts when it comes to paying off your mortgage. If your accelerated bi-weekly mortgage payments are $543, consider rounding up to $600. The extra $57 can save you thousands of dollars in interest over the term of your mortgage and you’ll barely notice the difference in your monthly budget. Note, some lenders have a minimum round up amount. For example, it could be a minimum of $50 or $100.
 
Refinance to or choose a shorter amortization

You may be able to refinance into or choose a mortgage from the beginning with a shorter amortization, such as 10, 15 or 20 years. Most mortgage consumers select 25 year amortization to afford the payments for income vs debt calculation, but if you can afford to choose a shorter amortization and you're certain your financial situation won't change for the negative, a shorter amortization will help you pay off your mortgage faster because the payments will be set higher due to the shorter timeframe you'll have to pay off the mortgage. 
 
Make lump sum payments

Adding just $1,000 extra to your mortgage per year will allow you to pay it off sooner and, combined with accelerated bi-weekly payments, can chip off a substantial amount of interest. This can come in handy when you receive a cash gift from Grandma over the holidays, a bonus from work or a tax refund - it's all gravy, so add it to the mortgage! Be mindful that most mortgages have an annual capped prepayment privilege! For example, you may be able to make additional lump sum payments equal to 15% of the original loan amount without penalty, anything above and beyond that may be subject to a penalty.  

The right mortgage product

Many mortgage consumers are only familiar with the traditional mortgage product, but did you know there are other mortgages that allow you to pay more of your principal faster, and without penalty? Secured Home Equity Line of Credit Mortgages allow you to make additional payments and have access to the equity, just like a regular line of credit but it's secured against your house. Be careful though, this type of mortgage is not for spenders!  

Chat with me

It doesn't hurt to take a look at your mortgage during your term, don't wait until the term is coming up for renewal to look at options. If your financial situation has changed, there could be a mortgage that might work better for your current financial goals. I'm only a phone call or email away for a no-obligation chat and we'll look at your financial picture and discuss some ideas.

 Sarah Nixon-Miller, Mortgage Broker
Toll-free across Canada 1-844-315-6609 (rings direct to my cell!)
sarahnm@mortgagegroup.com