Let’s start by understanding how your mortgage payments are divided up. There are two main components to each payment you make on your mortgage; first is the interest portion, which is generally the majority of the payment in the beginning as the lender wants to get their money back first. Second part of the payment goes to paying back the principle or the original amount you borrowed. In almost every case the mortgage lender gives you the opportunity to pay off your mortgage faster without penalty, its just a matter of knowing what those opportunities are. The key to paying off any mortgage is to pay back the principle as fast as possible and reducing the amount of interest you have to pay, saving you thousands of dollars.
The Three Most Common Ways to Pay Off Your Mortgage Faster
1. Increase Your Payments
By increasing your payment by as little as $50 per month you could save as much as $14,000 over the life of the mortgage if the interest rate stayed the same for the life of the mortgage. Keep in mind that once you increase your payment it must stay that way for the year. That’s less than one extra large Double Double a day, is that something that you would be willing to do to save thousands of dollars and pay off your mortgage faster? Extra large coffee – $1.72 multiplied by 365 days divided by 12 months equals $52.32 per month.
2. Keep Your Payments the Same at Renewal
When your mortgage comes up for renewal at today’s historically low mortgage interest rates, keep your payments the same. Say you were paying 5.35% interest on a locked in five year mortgage, you renewed at today’s variable rate of 2.35% but kept your payments at the 5.35% rate, you could save close to $60,000 and take eight years off the life of your mortgage if the rate remained constant for the rest of the life of your mortgage.
3. Use an “Accelerated” Option for the Payment on Your Mortgage
Your payment will be almost the same each month by choosing an accelerated payment option for your mortgage and save you money too. Accelerated weekly and bi-weekly payments can save you thousands of dollars and pay off your mortgage faster because you make one extra payment per year. There is no real advantage to accelerated weekly over accelerated bi-weekly unless it works better for you in how you get paid. Most lenders offer these options at no extra charge.
4. Make Lump Sum Payments
Most lenders offer this option as well. It is stated in your mortgage as to the maximum amount that can be pre-paid, usually 15-20% of the total mortgage per year over and above your normal mortgage payments. Don’t go over the percentage stated in your mortgage or the lender will penalize you. This money goes directly onto the principle because you are already making your regular mortgage payment which covers the interest being charged. Generally, it is best to make this lump sum payment the day after you make your mortgage payment to capitalize fully.
Following these four tips for paying off your mortgage faster you can save thousands of dollars and pay off your mortgage years sooner. Seeing as how your mortgage is probably one of your largest household expenses, by paying it off sooner that money can be used to help you achieve other financial goals.
If you would like to discuss your options of becoming Mortgage Free faster contact me at firstname.lastname@example.org , 613 354-9037, 1 877 333-4983 x760 or check out my Face Book Page for more helpful information about your mortgage at The McCaw Mortgage Team, http://on.fb.me/eBQczo