Planting seeds today for a better tomorrow (in a mortgaged world)

By: Sarah Colucci, Mortgage Specialist
February 15, 2018

It's challenging to save money when our monthly mortgage payment is almost the size of our pay cheques. For the many of us with larger mortgages, we wonder when we will become mortgage-free or how we will be able to achieve more savings earlier. 

Many people often overlook their mortgage terms. In the 6-10 page document called a mortgage approval, there are some strategies listed that we can use to become mortgage-free sooner -these strategies can also help to maximize our savings. 

Let's have a look at what we can do today to move towards a better financial future tomorrow.

1. Changing your payment frequency.

If you don't know how mortgage payments can affect your amortization period, then you may currently have your mortgage set to "monthly." 

If your mortgage gets paid on a monthly basis, it may be done so out of convenience. BUT if you make this simple change TODAY, you can save yourself years of interest payments down the road. 

Why I hate monthly payments: More time in between payments for interest to accrue & you will never shorten your amortization period. 

What can you do?

I recommend  Biweekly or Weekly, ACCELERATED, payments. Switching your frequency to bi-weekly or weekly means you will pay off principal much faster, reducing your amortization period and reducing how much interest you pay in the long run. This is because there is less interest accruing in between payments. 

For example, if your monthly payment is $1,000 then paying bi-weekly means you will pay $500 every two weeks. If your frequency is "accelerated," then twice a year, you will make three payments a month, which will result in two extra principal payments each year.  Also, there is less time in between each payment, meaning less interest is adding up. 

In the end, by making a simple change like this one, you could pay off your mortgage up to five years earlier. So, instead of paying for 25 years, for example, you could relish in five years of no mortgage payments at all.  Think about what you could do with all the extra money!

2. Increasing payments

You are allowed to increase your mortgage payments each month depending on what prepayment percentage your lender allows. 

If you choose to increase your payment by $100, for example, you can reduce your borrowing costs and become mortgage-free quicker. Some lenders allow you to increase your payments by up to 100%. By doing this, you are paying more towards principal faster and paying less interest on the overall mortgage balance.  

To do: If you are unsure of whether or not you want or can increase your monthly payment, start small. Try $50 a month, for example, and ask your lender how much interest that will save you over the life of your mortgage. You may be *pleasantly* surprised. 

3. Make lump sum payments 

Your mortgage contract allows you to make lump sum payments without a penalty. Most lenders offer prepayment privileges between 5-25% of the original principal balance. Tax advantage of this tool! 

Tip: Tax refunds, for example, can be applied towards your mortgage balance to reduce your amortization period significantly. 

Have questions about your mortgage?

I'm always here to help. Contact me today or call (647) 773-4849. Consultations are always free of charge.