Paying off your mortgage sooner is a great strategy and can save thousands of dollars in interest and you capture the equity in your home faster. There are a couple methods available to you when you are deciding how you will pay the mortgage off sooner, you can change the frequency of the payments, you can make extra payments or increase your regular payment.
Mortgage-Free Faster
Changing the Frequency
One the easiest ways to pay your mortgage off sooner is to change the frequency of your payment. When your mortgage is set up, it’s usually set up as a monthly payment. If you were to change from monthly to Bi-weekly or weekly payments, you are making extra payments to principal, and thereby reducing the interest you pay. For example, on a $100,000 mortgage at 4% interest, amortized over 25 years, the monthly payments would be $526.02. However, by simply switching to bi-weekly payments (every two weeks) with payments of $263.01, there would be a saving of $8,182 in interest! Weekly payments of $131.51 will save $8,276 in interest, and you will be mortgage free in the 20th year.
Prepayments – Extra Payments against the Principal
This is one of the most important features to look for when you are getting a mortgage. Having the prepayment privilege that works to your specific needs could mean a difference of thousands of dollars over the life of your mortgage. Although all financial institutions offer some form of prepayment privilege, the amount and how it can be applied varies from one to another. Some offer only up to 10%, once per year, and on the anniversary date. Then there are others that offer as high as 20% per year, and prepayments can be done throughout the whole year. Saving to make one large prepayment is not the best strategy. If you make small, regular prepayments will get you quicker to having your mortgage paid off faster.
Increase or double-up your regular payment
Another option for you is increasing your regular mortgage payment or some lenders even allow you to double-up your payment. For example, your regular mortgage payment is $1,000, increasing it $10/$15 on a regular basis will be paid directly to the principal. Thereby paying the mortgage down sooner. This feature varies from bank to bank. Some allow increasing the payment up to 10% and other as high as 25% per year. Should the need arise, you can go back to the original payment as well, so you are never “locked” into that payment.
Portable Mortgage
If you want to take your mortgage with you when you move, you can if your mortgage has a clause that allows you to do that. This option allows you to continue your savings on your lower rate if the going rates are higher, as well as void any penalties if you were to break that mortgage. If you are purchasing a more expensive property, your existing mortgage can be increased, but it will be blended. As for the associated costs, since a new mortgage document must be registered on title, legal fees and normal appraisal fees would be applicable.
Assumable Mortgage
If you are moving and don’t want to take your mortgage with you, or you are selling and not buying, to avoid a penalty, an assumable feature will allow the buyer(s) of your property to take over the mortgage (provided they meet the lender’s qualifying criteria). If interest rates are lower than those available at the time, your assumable mortgage can become a great selling feature for your property.
Rate Guarantee Periods for Maturing Mortgages
When your mortgage is about to mature, most lenders will mail out their renewal agreements around 30 days before the mortgage matures. Often, this can cause a lot of grief for many people, especially if rates start to climb just before the mortgage comes due. I can guarantee your rates up to 120 days (4 months) before your mortgage comes due, and this service is free and with no obligations. This service alone has saved my clients thousands of dollars.
