Happy New Year to all of my favourite Mortgagors!
It is the time of year for reflection, resolutions and goal setting. Financial goals are top of the list for many and it is a great time to do a mortgage check-up. Consider this your Mortgage Prepayment Pep Talk!
Some of you will receive a bonus or annual raise this time of year, instead of letting this money be whittled away by fancy coffees and avocado toast why not allocate some additional funds to paying down your mortgage?
Many lenders will allow you to pay your mortgage off faster without incurring any penalty by:
- Changing your Payment Frequency
This is often the easiest options for my clients, a minor change with a major impact. Switching from monthly payments to Accelerated Bi-Weekly payments can take years off of your mortgage. The lender will take your monthly minimum payment, divide this in two and you will have 26 payments per year.
On a mortgage of 400k on a 5 year term at 3.59% amortized over 25 years, switching from monthly to biweekly payments will knock almost 3 years off the loan. This pays it down by an addition $11,000 and also saves you $1051 in interest over the 5 years.
- Increasing your Payments
You are also likely allowed 10, 15, or 20% increases to your regular payments without penalty and a few lenders will even let you DOUBLE those minimum monthly payments. Any increases are applied right to the principle balance and as a result reduce your remaining amortization and interest payable.
- Lump Sum Payments
Sitting on some cash? Perhaps a portion of that annual bonus can be allocated to your mortgage loan. Your mortgage lender likely allows you to prepay 10, 15, 20% or more of the original mortgage balance per year without penalty. Again, this will reduce the amortization and interest paid over the term and gives you the flexibility of potentially paying the loan off IN FULL before the maturity date.
If mortgage prepayments excite you as much as they do me, and you would like a mortgage check-up or to review your prepayment options, I am always available. Let’s crunch some numbers and calculate your possible savings!