If you want to own your home sooner, become mortgage-free, and pay less money in the long run on your home – do we have exciting news for you!
Did you know when you make your mortgage payments a portion of that amount goes to paying the original mortgage amount owed (often referred to as the principal), while the other portion goes to paying off the interest cost on the money you have borrowed, to the bank or credit union you have your mortgage with? Typically as time goes on, a higher portion of each mortgage payment goes towards paying off the mortgage principal vs. the interest, but you can make this happen sooner.
It’s actually really easy and doesn’t require a ton of extra cash lying around to do (phew!- sigh of relief). The trick lies in a few simple strategies:
Change your mortgage payment schedule
Super simple and it is a no-cost way to shave years off your mortgage and save you money. If you are paying your mortgage right now monthly or bi-weekly, switch to accelerated weekly if you can. Accelerated payments are calculated by taking the monthly payment and dividing this by 4 weeks allowing you to pay 4 extra payments per year (after all is said and done, you’ll be able to pay down the principal of your mortgage quicker).
Shorten your amortization period
Instead of automatically picking a 25 year amortization period (the most standard option) choose to pay the mortgage down in fewer years when you are setting up your mortgage and payment schedule. With this option, payments will be higher than it would be with the standard amortization schedule but you will be paying less for your home in the long-run and pay it down more quickly.
Increase the amount you pay, even if it is just a small amount
You can do this by rounding-up your scheduled payments to the nearest whole number (rounding $750 to $800 or $850 to $1,000). This option can have minimal impact on your household budget and pay off your mortgage faster.
Take advantage of pre-payments
Any time you have extra money available consider skipping that dinner out or new clothing item and putting it towards your mortgage. Many mortgage providers offer the option of doubling up your regular mortgage payment amount or paying 10-20% of your original mortgage amount borrowed back, either throughout the year or in one lump-sum amount on your mortgage anniversary. See what your provider offers. This option can really speed-up the amount of money going to paying off your principal and can get you mortgage-free years earlier. Interested to see how the power of pre-payments can work for your situation? Speak to your advisor or try out our pre-payment calculator.
Keep paying the same mortgage payment amount when you renew your mortgage
Do you qualify for a smaller mortgage payment then you had before when your mortgage term comes up for renewal? Keep your foot on the gas and instead, continue to pay the same amount as before and you’ll pay off your mortgage that much sooner.
Use income from your property to pay down your mortgage
Consider leasing a portion of your property, like a basement suite, and putting this income to work on paying down your mortgage sooner.
Another benefit of paying off your mortgage quicker is that you will be able to use the equity in your home (how much of your home you fully- own) to get a home equity line of credit (HELOC) which can allow you to borrow funds as you need them for home projects quite often at a lower interest rate than other personal loan/borrowing options.
If saving money and owning your home sooner is something you want to explore for yourself, reach out to your Mainstreet advisor so we can see how these tips may best apply to your own financial situation.