Do you dream of being mortgage free one day?
Here are six tips to help you pay off your mortgage sooner and save you thousands of dollars in the process. The best part is that you will hardly notice a lot of these changes but the slight difference can equate to years and thousands of dollars.
1. Start with a Big Down Payment
From the start it is best to make the largest down payment possible. This reduces the amount you will have to pay back over the life of the mortgage as well as the interest you will be charged by your lender. In Canada, the size of your down payment also determines the fees charged by the Canada Mortgage and Housing Corporation (CMHC) which are extra expenses added to the principal of your mortgage. The larger your down payment the lower the CMHC fees; a downpayment of 20% or more means you can avoid these fees entirely.
2. Make More Payments
When you look at the breakdown of your mortgage the amount of interest you pay over its life can be astounding. Rather than be shocked look for ways to reduce the total amount of interest you will have to pay.
The most common approach is to make two smaller payments each month rather than one large payment, which can be done in one of two ways:
- Pay twice a month. This approach involves dividing your payment into two payments, for example on the 15th and last day of each month. This method lets you save on the interest over two weeks on your first payment.
- Pay bi-weekly. This approach involves making a payment every other week, for example every other Friday. This method earns you the same savings in the twice a month payment plan and opens up the opportunity to make two extra payments each year (26 payments compared to 24 payments).
With a little planning most people do not notice this slight difference out of their pocket but notice a huge difference on paying off their mortgage. And since most people are paid twice a month it works well with budgeting.
3. Increase Your Payments with Rounding
Often amortization schedules used to help determine your mortgage payments provide a payment down to the penny, for example $1368.38. By rounding this payment up to $1400.00 you only spend an extra $31.62 per month and likely won’t notice the difference. Over time this slight increase will help pay off your mortgage much faster.
4. Make Extra “Bonus” Mortgage Payments
Most banks allow you to make extra payments on your mortgage. When you receive unexpected income – for example your tax return or year end bonus – consider putting it towards your mortgage. These extra payments go straight towards your principal and keep you from paying more interest than necessary.
5. Pay Attention to Interest Rates (Variable)
When you are paying a low interest rate, more of your mortgage payment is going towards the principal and less towards interest. If you currently enjoy a low interest rate consider increasing your payments and take advantage of being able to put more of your payment towards the principal amount. This will help you get ahead in paying off the mortgage sooner than anticipated.
When interest rates increase less of your payment goes towards your principal and more towards interest. In order to stay on schedule with paying off your mortgage at a set rate you may need to increase your payment so that you aren’t just covering the interest each month.
6. Don’t Be Afraid to Refinance
When the market and interest rates change don’t be afraid to refinance your mortgage. Even though most lenders will charge a fee for this the savings in the end can outweigh the costs. An experienced mortgage broker can help calculate all the costs and expenses of refinancing and help you make the best financial decision.
Have you been trying to pay your mortgage early or have successfully done so? What additional tips can you offer?
If you need mortgage and finance advice as you search BC Real Estate Listings please contact me directly at 778-316-4290 or by email at BC Real Estate Agent. I can also recommend a qualified mortgage advisor in your area.