When we take out a new mortgage, consolidating debt into your mortgage or just renewing with your current financial lender, it is always imperative to find ways to pay your mortgage off quicker.
Most of us think of taking having a mortgage amortized over 25 or the longest period possible. After all, the faster you pay down your mortgage the quicker your net worth increases and gives you greater equity in your property.
There are many lenders with different prepayment options. Some will allow you to pay up to 15 per cent or 20 per cent, without penalty once each year of term of the mortgage. Also, they will also have the option of increasing your payment by up to 15 per cent to 20 per cent. For the 20 per cent model here is an example of what can be done: Should you take out a mortgage $200,000 and amortize it over 25 years with a term of 5 years at 2.64 per cent you will have a monthly principal and interest payment of $909.94. You have the option of paying off $18,000 each year which will reduce the principal $90,000 over the 5 year term. By taking advantage of the 20 per cent annual payment increase of $181.99 per annum, should you do that in the second through fifth year, that equates to an extra principal reduction of $8,735.52 in principal reduction. So, the total extra reduction in principal over the 5 year term would be $98,735.52. If you can’t take advantage of the full 20 per cent options, the terms will state you can increase your payments of put lump sum amounts down “up to 20 per cent” of the principal or payment amounts. So, if you can only put down 5 per cent per annum on the principal or increase your payments by up to 5 per cent, do that and you will still save interest costs over the span of the mortgage.
Another interest saving method for you is to have accelerated weekly or bi-weekly payments. In the example above, should you decide to take the accelerated bi-weekly payments, you would make a $454.70 every 14 days and would reduce the 25 year amortization down to 22.38 years.
As you can witness by the information above, the faster you pay off your mortgage the less interest you’ll pay and the quicker the equity will increase in your most expensive asset: your home.
Should you have any questions whatsoever please consider taking the time to call us to give us the opportunity to go over all of your options.