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MORTGAGE ARTICLES
Fast-tracking to “mortgage-free”
Just imagine – as you’re going through your favourite
coffee drive-thru this week – that a well-dressed gentleman stops and
offers you $11,000 for your medium double double. Who would hesitate? We’d
take the cash. It’s not so far-fetched. In fact, if you take that coffee
budget and apply it to your monthly mortgage payment – a mere $30 extra
per month –you could save yourself about $11,000 over the life of your
mortgage.
Most of us can accept the idea that we must borrow money
to purchase a home. We look for the best mortgage, and then just keep doling
out the money for as long as it takes to pay it off. Most Canadians choose
to amortize their mortgage over 25 years. That’s a long financial commitment,
and it could more than double the cost of your home. But with good planning
– and a few smart tactics – you should be able to enjoy your mortgage-burning
party much earlier.
Here are a few strategies for fast-tracking your mortgage:
1. Increase your monthly payments. Rather than choosing your
amortization period first, ask yourself how much you can afford each month.
For example, you may feel that you can afford $1,000 per month. You’re
delighted when your $125,000 mortgage only demands an $800/month payment (at
a 6% interest). But make a monthly payment of $1,000 instead, and you’ll
shave 8.75 years and almost $46,000 off your total interest cost.
2. Take advantage of lower rates. In addition to reducing
the overall interest component of your mortgage, you can take the opportunity
to pay down more principal faster – simply by maintaining your original
payment. You should even increase your payment if you can, to reap the benefits
of the cheapest mortgage money in memory. Again, you could take years –
and thousands of dollars -- off your mortgage.
3. Tie mortgage payments to your pay schedule. Many Canadians
are paid on a bi-weekly schedule. If you accelerate your payments to bi-weekly
instead of monthly, you could improve your own cash flow and fit in an extra
payment each year. That means that you’re paying off principal faster
– leaving you with less interest to pay overall. It doesn’t seem
like much but – like putting your coffee budget to work – the
bi-weekly strategy can have you mortgage free four years sooner, with almost
$22,000 in savings.
4. Use any bonuses, tax refunds or “found money”
to pay down principal. This is especially valuable in the early years of your
mortgage. If you receive an annual bonus or other lump-sum compensation, see
if you can put it against the principal. An extra $1,000 per year is a great
way to fast-track to mortgage-free!
5. Consolidate your loans into a new mortgage and use the
savings to boost your payments. If you’re a homeowner with some equity,
you can use your mortgage to consolidate your other loans: student loans,
car loans, etc. Add the money you’ve been spending on loan payments
to your mortgage payments, and you could see big savings in overall interest.
With mortgage rates at historic lows, you should take the
opportunity to get an expert mortgage analysis from an independent
mortgage broker with access to mortgages from a wide spectrum
of lenders. You’ve got a great opportunity to put some fast-track
tactics in place. You’ll remember what a good decision you
made at your mortgage-burning party.
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