5 ways to get mortgage-free faster
by Kerry K. Taylor ..A mortgage-free home not only saves you money today, but could save you a quarter million dollars over a 25 or 35 year amortization.Is that mortgaged roof over your head weighing heavy on your shoulders? Then maybe it's time to get serious about your mortgage and try to pay it off sooner.
Don't believe me? The Canada Mortgage and Housing Corporation (CMHC) has a handyMortgage Payment Calculator that crunches the numbers and does the math, and it shows that a $250,000 mortgage on a 30 year amortization (at 5.50 per cent) costs you around $257,500 in interest alone.
If you have no desire to pay for your home twice (and who does?), then reduce your interest payments and trim your mortgage costs with these five tips, and get mortgage-free faster.
1. Know what you can really afford.
Before buying that lavish estate, take a look at your paycheque and figure out how much of a mortgage you can comfortably carry. A good way to see how a mortgage feels is to practice paying it before you buy. Try this tactic:
- 1. Pay your landlord your monthly rent. Tally the difference between your rent and your anticipated mortgage cost.
- 2. Put this additional money into a Tax-free Savings Account or a high interest account and use it later for your home down payment.
- 3. If you can't come up with this additional money every month, then your anticipated mortgage price is too high. Continue saving for a bigger down payment or look at lower priced homes.
The Investor's Education Fund offers a series of home buying articlesfor would-be home buyers looking to scrape together a down payment.
2. Use your prepayment privileges.
If your mortgage has prepayment privileges -- lump sum payments you make outside of your regular mortgage payment schedule, where 100 per cent of the payment goes against the principal -- then you should use them to pay off your mortgage faster.
On a $250,000 mortgage at 6 per cent over 25 years, one prepayment of $1,000 each year could save you around $26,000 in interest and pay off your mortgage two and a half years sooner.
3. Get on an accelerated bi-weekly payment plan.
Want to really end your mortgage faster? Consider paying your mortgage every two weeks, for a total of twenty-six payments per year, using an accelerated bi-weekly payment plan. Your mortgage payments will fall on different calendar days each month, but this minor inconvenience could save you a stunning $50,000 in interest over monthly payments, assuming that same $250,000 mortgage with a 30 year amortization at 5.50 per cent.
4. Round up your payments.
If your regular mortgage payment is an odd number like $14,04.88, then round up to a more memorable $1410 and save some interest over the life of your mortgage. The extra $5.12 should be painless to part with, and even a little top-up can make you a homeowner sooner.
5. Pay a lump sum when possible.
Did you get a bonus, a tax refund, or come into an inheritance? Rather than squander this cash on consumer goods, add this after-tax cash to your mortgage principal and discover the freedom of being mortgage-free faster.
Your Turn: What tricks do you use to pay down your mortgage faster?
Content in this section is provided by Investor Education Fund, a not-for-profit organization established by the Ontario Securities Commission. IEF provides unbiased resources to help people make smarter financial decisions. GetSmarterAboutMoney.ca is IEF’s personal finance website.
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