If you own property in and around Metro Vancouver these days you know how dear a price you pay to get in the real estate game. When it comes to mortgages, rate is not everything. Rate certainly is one important aspect of your mortgage but re-payment options can be worth thousands of dollars to your bottom line over time and in a city that can be expensive to live in that counts for a lot!
Here are some ways to pay down your mortgage faster:
1) Accelerated Bi weekly payments – You can pay your mortgage monthly, or twice a month or every two weeks. If you pay bi-weekly you will get an extra 2 payments in a year. With 52/2 is 26 payments a year instead of paying twice a month for 24 payments a year. If you get paid every two weeks why not accelerate your payments? For example, say you had a $450,000 mortgage at 3.29% and you went with bi-weekly mortgages instead of paying monthly you would take a 25 year amortization down to 22.1 years (saving you $26,786 in interest payment). Also be sure to look ahead when those extra payments are coming so you don’t get caught off guard having to make that extra payment right at Christmas!
2) Increasing your payment – If you can round up your payments to a higher amount you will be reducing the principle loan down faster which can equate to years off your mortgage over time. For example, say your monthly payment is $777 why not try and stretch yourself to $800 (let’s face it $23 isn’t break the bank). Also, consider that when rates go up you will already be ready for higher payments in the future. Even just $20 a month that will have a significant! ($20 a month will save you $3,266 in interest over the life of a 25 year mortgage at 3.29% or shave 4 months off the end of your mortgage…)
3) Doubling up payments – Banks will often allow you to double up a payment (annually) and again the name of the game is paying down principal faster so if you have a lucky month doubling down consider doubling up.
4) Lump sum payments – Often you are allowed an annual payment equal to a certain amount or percentage of your mortgage. If you’re not able to make small incremental changes to your payments make larger payments on anniversaries or at the end of your term.
5) Found money – is money you were not counting on like birthday money or a bonus at work. You can shave years off a mortgage by unexpectedly attacking the principle when it’s not looking… Every little bit counts even just $100 a year will make a difference.
6) Annually review your mortgage – Even if you are in the first year of a five year term don’t get stuck on auto pilot. Rates are continually on the move up and down. It may be worth refinancing or blending in a new rate to your existing mortgage so give yourself a yearly “check up” as it could mean big dollars over the long haul.
7) Shop around – When you first get a mortgage of course you shop around for the best rate right? What about when the renewal notice comes? It is important that you don’t just re-sign the mortgage when the bank sends you those papers. A simple phone call to a mortgage broker could again save you instead over paying on a higher rate because it was just too easy to just continue on without checking around. One little phone call could be worth a boat load of cash in your account over time.
8) Rise with the tide – Hard work often pays off. When you get recognized for your hard work through a raise or you get a new job making more money put it towards your mortgage. If you were comfortable living before keep your life style the same and increase your mortgage payments. It’s not as fun to save now but being debt free really pays off in the long run.
9) Diversified savings – If you really love to save and max out on some of your prepayment options early you can also contribute more to your RRSP’s to get a bigger tax refund that you can then apply as an annual payment to your mortgage later and get the best of both worlds of saving for retirement and paying down debt in combination!
10) Steady On – When rates drop, keep your payments the same. As stated above, if your happy with your life style why not punch up the prepayment. A drop in rate is the equivalent of upping your payment but it doesn’t cost you any more… How does that sound?
(Talk to your bank or review your mortgage terms to find out if these are options will work for you. If you don’t have these options and you want them be sure to get the full picture from a mortgage professional as to what your options are! I could recommend some great people just drop me a line.)