Check out our tips to pay off your mortgage faster and save more money!
Purchasing a home is a major accomplishment, but paying off your mortgage as early as possible will be the best investment you can make. A 2010 Canada Mortgage and Housing Corporation (CMHC) survey indicated that 68 per cent of recent homeowners felt there was a strong chance they could pay off their mortgage earlier than their current amortization schedule, and 27 per cent have either made additional lump sum mortgage payments or have increased their regular payment amounts.
As interest rates start to rise the Loewen Group wants to arm you with every possible way to help pay down your mortgage faster. We realize that while you want to pay the mortgage off you still need a night out or a vacation once in a while. Here are a couple of ways we can shorten your amortization without killing your social life.
1. Accelerated bi-weekly payments
Instead of paying your mortgage on a monthly basis 12 times per year, pay your mortgage every two weeks for a total of 26 payments each year.
Example: A $300,000 mortgage paid on a monthly basis with a 3 per cent interest rate over 25 years will cost you $125,920.44 in interest. However, if you increase your payment frequency to accelerated bi-weekly payments, you will shave nearly three years off of your amortization schedule, and save $16,058.57 in interest.
2. Round up your mortgage payments
Make no mistake: Every dollar counts when it comes to paying off your mortgage. The quicker you can pay off your loan, the more you will save in interest. A painless way to make your mortgage disappear faster is to round-up your mortgage payments.
Example: Bi-weekly payments on a $230,000 mortgage with a 2.75%* interest rate over 30 years would be $468.53. Increase those bi-weekly payments by just $31.47 to $500, and you’ll shave nearly six years off of the amortization schedule. (Think of the interest you have saved as well!)
3. Put ‘found’ money towards your mortgage payments
Unexpected sources of money such as a birthday cheque from a relative or a bonus at work are considered sources of ‘found’ money.
‘Found’ money can be easily applied to your mortgage without any impact to your budget because it wasn’t money you were expecting or counting on.
Consider increasing your RRSP contributions, and then put your tax refund directly towards the principal of your mortgage.
Example: A one-time payment of $5,000 on a $250,000 mortgage at 3.75 per cent over 30 years will decrease your mortgage amortization by over 12 months.
4. Make a lump sum anniversary payment
The majority of our lenders will allow you to make extra mortgage payments each year, which is applied directly to the principal. Taking advantage of this by making a lump sum payment — even if it’s as small as $100 a year — is a great way to chip away at your mortgage.
Example: An annual lump sum payment of $250 on a $400,000 mortgage at 3.50 per cent over 25 years, combined with a bi-weekly payment frequency will decrease your mortgage amortization by over 3.5 years.
5. Stay informed
Once you have a mortgage and start making your payments, it can be easy to just forget about it because it’s an automatic payment. But don’t worry – that’s why you have us! To be an informed homeowner, you need to keep up-to-date on interest rates and new mortgage options. You could potentially save a ton of money just by understanding what your options are – and we are here to help!
Example: Let’s say that interest rates have dropped since you took out your mortgage a few years ago, but you are in the middle of a five-year fixed term with your bank. By understanding what the penalties are for breaking your mortgage, and reapplying for a lower interest rate, you could potentially save thousands of dollars over the long run.
Armed with information and commitment, these tips will help you pay off your mortgage faster. The freedom that comes from being completely debt-free – while still enjoying the finer things in life – is a dream for many Canadians. Take the time to do some calculations, talk to the Loewen Group and we can help figure out what the best options are for YOU.