While most mortgages are amortized over 25 years, below are several tips to make you mortgage-free as quickly as possible. If you follow all the suggestions below, your mortgage will be gone quicker than you think:
Never get an open mortgage at a fixed rate unless you plan on paying it off within its term. Today’s closed mortgages generally offer 10-20% prepayment privileges, and can usually be obtained at 1% or more off the posted rate. Open mortgages at fixed rates carry higher interest. Why pay higher interest unless you are going to exceed this 10-20% prepayment? You can always make bigger lump sum payments at renewal time with no penalty.
Use accelerated weekly, or bi-weekly payments. Accelerated weekly payments are equivalent to one-quarter of your monthly payment. Accelerated bi-weekly payments are equivalent to half your mortgage payment. Both of these methods enable you to make one extra monthly payment per year. The impact of this alone reduces your amortization from 25 to less than 21 years.
Give your mortgage the same raise that you get each year. If your income goes up 10%, so should your mortgage payment. This extra increase in payment will go directly towards principal repayment.
Give your mortgage a portion of any bonus or extra income. If you spend 30% of your income on your mortgage, then 30% of any extra income should also go to your mortgage in the form of a prepayment. This bonus portion will go straight towards principal repayment.
Keep your payments the same, even if you renew at a lower rate. Since you know you can afford to pay at this level, don’t decrease your payment when you negotiate a lower rate. The difference in payments between your new rate and the old rate will go directly to the principal.
Use your income tax return to put a lump sum payment towards your mortgage. This is extra money that is not used in your monthly budget. Put it towards the mortgage each year and you will see how quickly it reduces your principal balance .
Use extra money from your budget. Most financially sound people have a budget that they live by. If you have a little bit extra then apply it to your mortgage. Minimum prepayments can be as little as $100.
Round up your mortgage payments. Why not round off that $656 bi-weekly to $660, or $675. You’ll be amazed at the difference.
Consider a variable rate mortgage. While the fluctuation will keep some people awake at night, those who can endure the rate adjustments can save money.
Seek independent financial advice. While some bankers do look out for your best interest, they work for the bank and not you. Their branch, organization and shareholders all have a financial interest in lending at higher rates, and it is in their best interest for you to keep your mortgage for a long time. Talk to your financial planner, mortgage consultant, or talk to a financially savvy friend.