Five Ways to Pay Off Your Mortgage Faster
Most homeowners would love nothing more than not to have to pay their mortgage every month. But trying to pay off your mortgage ahead of schedule is not something to be undertaken lightly. You must make sure you are financially secure, with no other significant debt, and have money in reserve for emergencies.
There are also compelling arguments for not paying off your mortgage ahead of schedule. For instance, you may want to enjoy your money now. By allotting less of your income toward your mortgage, you have more money available for vacations and other uses. Or you could use the money for home improvement, which can make your home more comfortable and valuable when you are ready to sell.
In your haste to be rid of your monthly mortgage burden, you cannot afford to mortgage your financial future. Make sure you will be able to finance your children’s college education and your own retirement.
However, if you are in a debt-free financial position where you can pay off your mortgage more quickly without sacrificing other aspects of your life, there are ways to accomplish this. Naturally, you will have to consult your lender to see what you can and cannot do.
Here are a few of the most popular options:
1. Increase your payment schedule. Bi-weekly mortgage payments have become increasingly popular as a way to pay off a mortgage more quickly. This will allow you to make 1 extra payment per year and will end up saving you thousands of dollars in mortgage interest while cutting years off of your loan. Signing up for a bi-weekly or accelerated mortgage payment program will not only help you save money and cut the term of your loan down but it they will also help you build equity into your home faster.
2. Make lump sum payments. Depending on the terms of your mortgage agreement, you may be able to make lump-sum payments at specific times. For example, you could earmark your bonus check of $5,000 to pay off part of your mortgage. A lump-sum payment is applied directly to your outstanding principal if there is no outstanding interest owing. This saves you money over the course of your mortgage.
3. Shorten the time frame of your loan. You could elect to refinance and change your 30 year mortgage to a 15 year mortgage. Bear in mind, though, that your monthly payments will be considerably higher.
4. Increase your payments. If your financial situation has improved and you are making more money, you may be able to make higher payments or balloon payments. Most loans will allow you to increase your payments in this manner with certain restrictions.
5. Refinance at a lower interest rate, but pay the same amount each month as you did before. If you maintain a 30-year mortgage, the money you were paying in interest can now to toward the principal.
Remember, the first step is to make sure you can afford to pay off your mortgage more quickly. Contact us and discuss which of these strategies are best for you.
Read MoreUnderstanding Your Mortgage Options
Congratulations! You’ve decided to begin your search for a new home, or perhaps you’ve already found the home of your dreams and are ready to make an offer. It’s now time to consider your mortgage options. But with so many different choices available, how can you select the right kind of mortgage for your needs?
To help you make an informed decision, Canada Mortgage and Housing Corporation (CMHC) offers the following answers to some of the most common questions Canadians have about choosing a mortgage:
What is the difference between conventional and high-ratio mortgages?
A conventional mortgage is a loan for up to 80 per cent of the purchase price (or market value) of a home. With a conventional mortgage, the buyer supplies a down payment of at least 20 per cent, and mortgage insurance is usually not required. If your down payment is less than 20 per cent of the purchase price, however, you will typically need a high-ratio mortgage. High-ratio mortgages have to be insured against payment default.
What are fixed, variable or adjustable interest rates?
When you choose a mortgage, you have to decide whether you want the interest rate to be fixed, variable or adjustable. A fixed rate is locked-in for the entire term of the mortgage. With a variable rate, the payments remain the same each month, but the interest rate fluctuates in accordance with the overall market. For adjustable rate mortgages, both the interest rate and the mortgage payments vary based on market conditions. Contact me to find out which option is right for you.
Should I choose an open or closed mortgage?
With a closed mortgage, you pay the same amount each month for the entire term of the mortgage. Closed mortgages can be a good choice if you want a fixed payment schedule, and you don’t plan on moving or refinancing before the end of the term. An open mortgage allows you to pre-pay a lump sum or even the entire loan at any time without a penalty. An open mortgage can be a good choice if you’re planning to sell your home in the near future, or if you want the flexibility to make lump sum payments.
What about the term, amortization and payment schedule?
The term is the length of time (usually from six months to 10 years) that the interest rate and other conditions of your mortgage will be in effect. Amortization is the period of time (such as 25 or 35 years) over which your entire mortgage debt will be repaid. Lastly, the payment schedule sets out how frequently you will make payments on your mortgage – usually either monthly, biweekly or weekly.
For more information or if you have any questions please feel free to contact me.
Read More
April 1, 2010 News Wrap
Mortgage insurance is a pillar of Canada’s strong housing market
Mortgage insurance — policies that protect lenders in case of default — has revolutionized the Canadian housing market, experts say. For a relatively low premium, tacked onto the face value of a loan, buyers can own their home with as little as five per cent cash down payment. Read More
Tighter mortgage rules may lead to more cheating
Mortgage fraud may not be the most serious crime in the grand scheme of things, but it’s not something the government should be helping. But that’s exactly what real estate professionals say is a likely result of the new mortgage rules being put into place on April 19. Read More
Canadian dollar tops 99 cents
The Canadian dollar topped the 99-cent (U.S.) mark as oil prices rose and a stronger-than-expected economic report solidified expectations interest rates in Canada will climb before the United States moves its rate. Read More
Read MoreAccelerated Bi-Weekly Payments
How do accelerated bi-weekly mortgage payments work and how can they help pay my mortgage off faster?
If you’re looking for ways to pay off your mortgage faster, you have three basic options; reduce your amortization period, increase your monthly mortgage payment or change the way you make your payments.
If changing the way you make your payments sounds appealing, than accelerated bi-weekly mortgage payments might be just the ticket.
Not to be confused with semi-monthly mortgage payments (24 payments per year), accelerated bi-weekly mortgage payments (26 payments per year) will not only pay your mortgage off faster, but it’s guaranteed to save you a significant amount of money over the term of your mortgage.
Here’s how it works:
Let’s say you have a mortgage of $100,000, an interest rate of 5.00% and an amortization period of 25 years. Your monthly mortgage payment would be $581.60 and your total payments for a year would be ($581.60 x 12) $6,979.20.
To understand the savings accelerated bi-weekly mortgage payments can make, take the monthly mortgage payment of $581.60 and divide it by two ($581.60 / 2 = $290.80). Then take that payment and multiple it by 26 to arrive at your total of all payments for the year ($290.80 x 26 = $7,560.80).
There’s the difference. Using the monthly mortgage payment plan, you’ve made a total of $6,979.20 worth of payments for the year, while using the accelerated bi-weekly mortgage plan you’ve made $7,560.80 worth of payments, a difference of $581.60. Basically with accelerated bi-weekly mortgage payments, you’re making one additional monthly payment in the year.
Using this example, you would reduce the amortization on your $100,000 mortgage from 25 years to just over 21 years and a total savings on interest, over the life of the mortgage, to just over $12,000.
Looking for more information on accelerated bi-weekly mortgage payments? Contact Scott Dawson directly.
Read MoreScott Dawson
Mortgage Specialist
Phone: 778.668.9320
Toll Free: 888.759.0190
