Add the value : Tips to Become Mortgage Free faster.
Are you feeling weighed down by the years remaining on your mortgage? Worried about when you should lock in your variable rate, or unsure of refinancing with rates on the rise? Getting a good interest rate is crucial, but there’s a lot more you can do to ensure that you are mortgage free sooner. Flexibility and options are key – and the advice of an unbiased mortgage professional can help you make the most of these alternatives.
Buying a home is often the largest and most fulfilling investment you will ever make. Home ownership in most cases, involves the responsibility of carrying a mortgage. Most mortgages are paid over a 25 year period. Here are some tips to help you pay your mortgage off faster. Not only will this reduce the number of years you’ll be making mortgage payments, paying your mortgage off faster can add up to big savings! There are basically two ways to “pay down” your mortgage and get out of debt faster: make lump sum payments or accelerate your regularly scheduled payments.
Making Lump Sum Payments
You can make a one-time or annual lump sum payment on most closed mortgages. The amount of the lump sum payment usually varies by product and financial institution, but typically ranges from 10% – 25% of your original mortgage amount. For example, if you have a 10% lump sum privilege and you pre-pay $8,000 each year for 5 consecutive years on an $80,000, 5-year mortgage term, you could save as much as $87,575 in interest and become mortgage-free in 8.28 years! This example is based on a mortgage with a 9% interest rate per annum and a 25 year amortization.
Set aside a lump sum each year to apply against the balance of your mortgage. You can save thousands of dollars in interest and shorten the time it will take to pay off your mortgage.
Don’t forget that you can make a lump sum payment of any amount without having to pay any associated prepayment costs (in some cases as per mortgage terms set by lender-case can be different- check with lender) on your mortgage renewal date. Even a small lump sum payment can add up to big savings.
Stepping Up the Regular Payments
There are two ways you can increase your regular mortgage payment. Any increase in your regular mortgage payment is applied directly to the principal and it therefore reduces the length of time it takes to pay off the mortgage.
Increase the amount you pay on the principal. This can range from 10% to 100% depending on the financial institution you are dealing with. Topping up your payment is a great way to do this. For example, round up your payment to $700 if your regular mortgage payment is $662. The difference will be applied directly against the principal.
Choose accelerated payments by increasing your payment frequency. For instance, pay the equivalent of 13 monthly payments over 12 months.
6 Tips to Become Mortgage Free
1. Match your mortgage payments with your pay periods. Not only does it make budgeting easier, but if you have bi-weekly payments you’ll be making an extra payment each year (and you won’t even feel it!)
2. Shorten your amortization. If you can budget for the higher monthly payments, this will help you build equity faster and take years off your mortgage.
3. Use your pre-payment option. Many people get a mortgage with this feature, but only 3% actually take advantage of it. A few hundred here and there can add up to thousands saved later on.
4. Income increasing? Consider permanently increasing your payments to match. Again, you won’t feel the strain, but your equity is increasing and interest decreasing with every extra dollar you put in.
5. Most mortgages allow a lump sum payment in any one calendar year – and if you don’t use it, you lose it. Just because you don’t have a huge sum to put away doesn’t mean it isn’t worth it. Even small extra payments could pay big dividends later.
6. Shop around for better terms at renewal. Although it seems easier to just sign the form your bank sends, most people renew at rates higher than what they could have achieved if they had negotiated. Your mortgage professional is not just there for the purchase, but throughout the life of your mortgage.
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