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Saturday, June 19, 2010

First National - New Ideas

First National - New Ideas

New Ideas

How a prepayment today can build significant future savings

You could probably find many ways to spend any “extra” cash that comes your way, whether it’s a tax refund, an unexpected gift, a bonus cheque, or just hard-earned savings. Consider using the money to prepay part of your mortgage. Even small prepayments can make a big impact over time and potentially save you thousands of dollars.

The great benefit of making prepayments on your mortgage is that every extra dollar goes toward the principal amount of the loan. Since that’s the portion you pay interest on, paying it faster means paying less interest over the long term and becoming mortgage-free sooner. The higher your interest rate and the earlier you are in your amortization period, the greater your savings.

But that’s not all. Prepaying your mortgage will help you build your home equity at a faster pace and will bring you one step closer to owning your home outright.

Explore these prepayment options

There are three ways you can prepay your First National mortgage. To illustrate the savings potential, we’ll use the example of Joe, a new homeowner paying $830 a month in mortgage principal and interest. Joe’s mortgage is $150,000 at 4.5% and has an amortization period of 25 years.

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1. Make an annual prepayment. You can pay up to 15% of your original principal each year on any of your regular payment dates, minimum $100.

Savings potential: Joe receives a tax refund of $2,000 each year and decides to use it to make a principal payment on his mortgage at the end of every year. In this case, Joe could save approximately $28,000 in interest costs over the life of his mortgage and pay it off six years earlier.


Increase your payment amount.

2. Increase your payment amount. Once per year, you can increase your mortgage payment amount by up to 15%. The increased amount will go directly towards reducing your principal balance. Some exceptions apply, so check your mortgage documents.

Savings potential: If you raise your mortgage payment amount in step with any increases in income, such as a raise, even a small amount can make a difference. By simply increasing his original monthly payments by $50, Joe could potentially save as much as $11,000 in interest costs.


Double-up a payment

3. Double-up a payment. You can double-up your payment on any regular payment date. This is applied directly to the principal of your mortgage.

Savings potential: Joe decides to double-up on a single monthly mortgage payment each year, paying $1,660 instead of $830. If he did this every year for 10 years, he would save as much as $13,000 in interest and shave two years off his amortization.