Courtesy of Alexandra Evans-Munoz from The Mortgage Centre.
The following strategies will help you to minimize the amount of interest you pay and the number of years you hold your mortgage.
Increase your payment amount
It may take some adjusting to work into your budget, but increasing your monthly payment amount can save you thousands of dollars in interest over the duration of your mortgage and reduce the life of your mortgage for several years. For example, suppose you have a 5- year fixed mortgage of $250,000, your monthly payment is $1,104.04 and you increase it to $1,200.00, you will save about $ 21,128.95 in interest and own your home 4 years earlier.*
Increase the frequency of your payments
While the most common payment plan is monthly, you may be better off making smaller payments more frequently. In this way, you could reduce the amount of interest you pay and reduce your principal more quickly. For example, if you broke your monthly payment of $1,200.00 into accelerated bi-weekly payments of $600, you would own our home approximately 4.5 years earlier.*
Pay more when you can
If you chose a mortgage that allows you to make contributions outside or your regular payment date, taking advantage of it whenever you can offers considerable savings. Your contribution goes directly into towards your outstanding principal so your mortgage is immediately reduced by the full amount.
Taking full advantage of opportunities to reduce your principal really maximizes a payment and is an effective way to reduce your mortgage. Consider reworking your budget to set aside funds for additional payments.
I’m always here to help you make informed decisions regarding your mortgage. Please don’t hesitate to contact me to find answers or receive the personalized advice you need.
* For illustration purposes only. Payment option scenarios assume a 5 year closed, fixed mortgage with a 30 year amortization. Actual rates will vary, which will affect your payment amount, your mortgage payout and the amount you could save.
For more information on related topics, please contact DFS Private Wealth, the author of Managing Alone and founder of widowed.ca. We are here to help and answer any questions you have. Should you need a connection to a professional in your area we would be happy to make the introduction for you to someone you can trust. Contact Us today.