Of Prime Interest: Tips on how to pay off the mortgage faster
With the current incredibly low interest rates, it’s even easier to put a huge dent in your mortgage.
For example, consider someone that took out a $250,000 mortgage with a 35-year amortization at a previous higher rate of 3.99 per cent. Did you know that just $87 a month extra with each of your monthly mortgage payments could save you about $66,000 over the life of your mortgage?
It’s not even as much as most Canadians spend on a cup of coffee each morning.
Or perhaps you have reduced your mortgage balance to $175,000, and have renewed a few years ago at a higher interest rate of 4.75 per cent.
Consider these suggestions:
1. Increase your monthly payments. If you can afford $1,200 per month but your mortgage only demands $1,000 per month, make a payment of $1,200 instead. You’ll shave seven years and more than $80,000 off your total costs.
2. Take advantage of lower rates. In addition to the increase of $200 a month, redo your mortgage at today’s five-year rate of 3.09 per cent and shave another three years off. That is 10 years in total. What could you do with 10 years of mortgage payments instead of paying all that hard earned money as payments to the bank?
3. Bump up to accelerated bi-weekly payments. If the extra $200 per month isn’t in your budget right now, redo your mortgage to a current interest rate and add more frequent payments. To fit in an extra payment each year can amount to paying off your mortgage five years earlier, a savings of $60,000.
4. Use any bonuses, tax refunds or “found money” to pay down the mortgage principal. This is especially valuable in the early years of a mortgage.
5. Consolidate your loans into a new mortgage and use the savings to boost your payments. If you’re a homeowner with some equity, use your mortgage to consolidate your other loans. Add the money you’ve been spending on loan payments to your mortgage payments to see big savings in overall interest payments.