The majority of us have one and although it might be one of the only forms of debt that is considered “good debt” we all would like to be mortgage-free before we are old and grey. A mortgage loan can be overwhelming for some as it’s the largest amount of money we will ever borrow. Loans for a school tuition or a vehicle are much easier to wrap our heads around than a six figure number!
We have all heard the saying; “the best way to eat an elephant is one bite at a time”. When I think about a mortgage, I think about the payment – “the bite” rather than the entire amount.
Since we “live in” the payment and focus our monthly expenses verses income, we don’t typically think about the total borrowed amount (the elephant) but rather our monthly payment (the bite). Lets look at some simple ways we can pay off our mortgage quicker without biting off more than we can chew.
Accelerate Your Payment
Set up your payment schedule so that you pay weekly or bi-weekly. This will add a couple of extra payments each year, resulting in paying off your principle quicker.
Example: A $300,000 mortgage paid on a monthly basis with a 3 per cent interest rate over 25 years will cost you $125,920.44 in interest. However, if you increase your payment frequency to accelerated bi-weekly payments, you will shave nearly three years off of your amortization schedule, and save $16,058.57 in interest.
Round Up Your Payment
It might not seem like it would make a big difference but if your mortgage payment is $860 monthly, why not pay $900 each month. You will likely not notice the extra $40 per month but over a 5 year term, you will have paid $2400 extra.
Make an Annual Lump Sum Payment
Make extra monthly or annual payments. Usually the bank or mortgage company allow a certain amount to be paid each year on top of what’s scheduled. This extra amount will be put directly towards the principle. If you pay alittle extra on the principle, the more every payment from then on is applied to the principle.
Renewal Wisely
When it’s time to renewing your mortgage term, if your payment will drop due to mortgaging a lower value or interest rate reduction – keep your payment the same! This will take YEARS off your mortgage. Check with your mortgage advisor or read your mortgage contract to find out what options you have!
