Every home owner dreams of being mortgage free. In today’s environment, home prices are some of the highest they have been, and with that, mortgage sizes are significantly larger. Today’s home owners tend to feel it is the norm to always have a mortgage and never pay it off completely. The truth is, there are many opportunities to paying down your mortgage more quickly, and this could save you tens of thousands of dollars over the life of your mortgage.
Accelerated Mortgage Payments
Do you pay your mortgage monthly? Call your lender and ask to switch to weekly or accelerated bi-weekly payments instead. This is one of the single best ways to get your mortgage paid down faster, and save you tens of thousands over the amortization (life) of your mortgage.
Increase Your Payments
Seems like a simple idea; but even rounding up to the nearest $100 dollars can slash your amortization down significantly, and again save thousands of interest each year. If your bi-weekly payment is $557, round your payment up to $600. That extra $43 every two weeks means more dollars going directly to your principle, and your monthly cash flow budget will hardly notice it’s gone.
Make Anniversary Payments
We all love to acknowledge milestones like wedding anniversaries, birthdays, and other important dates each year. Why not give your house (and your mortgage-free future) a little love once a year? Try to commit to a set amount that you will pay each year at anniversary time. Even if it’s $500 extra per year, this will get you to your goal of being mortgage-free faster. If one lump sum is too tough to muster up, try to put a specified amount down on a quarterly basis.
Be Smart at Renewal Time
When you renew your mortgage for a new term (say, every 5 years), keep your payments the same. Your mortgage will be less, and likely your new 5-year term can have a lower payment. If you are comfortable with the payment you are currently paying, why reduce that only because your lender says you can? You will be much further ahead and save lots in interest just by keeping everything the same.
Be Wary of Interest Rates
Our current low interest rate environment in Canada gives you a significant leg up to pay more toward your principle. Unfortunately, home buyers are getting into larger and more expensive homes, given they can get approved for these bigger mortgages due to the low interest rates. If you consider how much house you can afford at a moderately higher interest rate, this is the more financially suitable house for you. Firstly, if interest rates rise, you won’t be left with an unmanageable payment at renewal time. Secondly, you can increase your payments to pay more of the principle with every single payment, thus reducing your mortgage (and interest paid) at a substantial rate.
Use a Mortgage Broker
If you are looking to buy a new home, or if it is just renewal time on your current mortgage, partner up with a trusted mortgage broker. Brokers can get you the best rate for the best terms, and will hopefully offer lots of good advice as to how to make the above mentioned tips to paying it down even faster. If you simply sit down at your local bank branch and apply for a mortgage, then renew that mortgage with the same bank every 5 years, are you really getting the best deal? It’s possible, but working with a broker will ensure you get the best deal every time. Brokers are paid by the lender they put your mortgage with, so there is no out-of-pocket cost for you to hire this professional partner. And, if the mortgage market changes or interest rates fall, you always have another trusted advisor in your circle to give you good advice on whether to make a change before your actual renewal date.
Take a moment to think about what life would be like if you didn’t have a mortgage payment anymore. What would you do with that cash every month? Save it for a yearly vacation (or two)? Save more toward your retirement, and retire years earlier than ever possible before? It is within reach!