There are a few things you can do to get your mortgage paid off faster and pay less towards interest, and then use that money you saved for more important things…like golf.
1. Take a look at your payment schedule
If you’re currently paying a monthly mortgage payment, consider switching to an accelerated bi-weekly payment. This would lead to the equivalent of approximately one extra payment towards your mortgage per year which would shorten your amortization and save you thousands on interest.
For example, let’s say you have a $500,000 mortgage with monthly payments, an interest rate of 5%, and an amortization of 25 years. Making the switch to accelerated bi-weekly payments would shorten your amortization to 21 years and 6 months and save you approximately $60,434 in interest over the course of your mortgage (in keeping the 5% interest rate throughout the life of your mortgage).
2. Increase your payment
If your lender offers pre-payment privileges that allow you to increase your payment amount without penalty, this is another great way to shorten your amortization and save on interest.
For example, using the same $500,000 mortgage example listed above for simplicity, your monthly payments for this mortgage would be approximately $2,908. If you can afford to increase your payment $250 each month, you would shorten your amortization to 21 years and 6 months and save approximately $60,371 in interest over the course of your mortgage.
3. Make lump sum (or extra) payments
Another pre-payment privilege that some lenders allow, is for you to make lump sum or extra payments on your mortgage every year. These lump sum payments are typically capped at 15-20% of what you owe, however, this is another great way to shorten your amortization and save you a lot of money on interest.
For example, with the same $500,000 mortgage, if you were to make a yearly lump sum payment of $2,850, you would shorten your amortization to 21 years and 6 months and save approximately $60,357 in interest over the course of your mortgage.
There are more options for saving money and paying your mortgage off faster, i.e., negotiating a lower interest rate and choosing a shorter amortization period, but these are ideally done when your term is up for renewal, so we’ll keep those examples for another blog post.
Reach out if you have any questions. Not all lenders allow for pre-payment privileges so to avoid penalties check out your mortgage package or give me a call first. I would be happy to assist.
Nadia
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