Being mortgage free faster can save thousands of dollars of interest rate. Pay off your mortgage as fast as your budget will allow with these 4 steps
1. Increase Payment Frequency
Many people don’t realize that you can be mortgage free faster by increase you payment frequency from monthly to bi-weekly, accelerated bi-weekly, or even weekly. Going from 12 payments, to 24 or 26 can make a huge difference. This also breaks up your payments into smaller pieces. Instead of having a large monthly sum, can you split this number in half. Which can be an especially smooth transition for people that are already paid bi-weekly. Many people choose to match their mortgage payment frequency to their pay periods to simplify the process.
Results are best seen when you switch to an accelerated option. Accelerated weekly and bi-weekly payments can save you thousands in interest charges because you’ll make the equivalent of one extra monthly payment each year.
On the same $300,000 mortgage as above, a bi-weekly payment will save $289 in interest over the life of the mortgage. On the other hand, with an accelerated bi-weekly payment (an extra $50 per payment) you’ll save more than $18,000 over the life of the mortgage.
2. Increase the amounts of your payments
A little goes a long way when you increase the amount of your mortgage payments. Even putting away as little as an extra $100 a month even make a big impact in making you mortgage free faster.
Take a scenario where you have a $300,000 mortgage. If you added $100 to your mortgage payments, at 3.29 per cent over a 30 year amortization, will save you more than $11,000 and reduce the amortization by 3 1/2 years.
Alternatively, if you have the capability to put more money down, there are lenders that will let you let you put down an extra 20 per cent on top of your original mortgage payments.
3. Make a lump sum payment
A lump sum payment, or prepayment, reduces your outstanding principal. The sooner you can make a prepayment, the less interest you’ll pay over the long term. Your mortgage agreement specifies the maximum amount you can prepay each year (usually 10 to 25 per cent) and how often (usually once per calendar year) without penalty.
Coming up with a large lump sum – up to $75,000 on a $300,000 mortgage – is next to impossible for most people. But even a small sum – from a bonus or tax refund, for instance – can reduce your overall interest amount.
4. Get the Best Interest Rate You Can
The interest rate on your mortgage is the invisible hurdle you have to jump to pay off your mortgage. The higher it is, the longer it will take to pay off your mortgage. One of the best shortcuts to a paid-off mortgage is to find a better interest rate, and there’s no better place to do that than with a mortgage broker. We’ll find you the best rate that you qualify for using our large network of lenders.
Follow these steps and you can be Mortgage Free Faster without having to make a larger salary