“You weren’t born just to pay your bills.”
You’ve probably heard this saying before, and found yourself relating to it in some way. It’s easy to get stuck in the paycheck-to-paycheck lifestyle habit and just cover the bare minimum on your bills for months or even years at a time. When was the last time you made a new savings goal? And actually achieved it? Chances are, something else is going to come up and get in the way. The dishwasher breaks. The truck needs repairs. Your best friend just booked a destination wedding in Hawaii. Life happens.
As much as you would like it to be, paying down your mortgage may not always be the priority. But what we often forget is that your mortgage isn’t just a transaction. It’s not just another bill to pay. When you choose your mortgage, you’re choosing a lifestyle. And just like nothing in life lasts forever, you shouldn’t feel shackled to your mortgage. So, how do you pay off your mortgage faster? Here are five key steps to get you started…
- Accelerate your bi-weekly payments
By doing so, you could save thousands of dollars in interest and make a significant dent in your amortization schedule.
For example, A $300,000 mortgage paid on a monthly basis with a 3 percent interest rate over 25 years will cost you $125,920.44 in interest. However, if you increase your payment frequency to accelerated bi-weekly payments, you will shave nearly three years off of your amortization schedule, and save $16,058.57 in interest.
- Round up your mortgage payments
A painless way to make your mortgage disappear faster is to round up your mortgage payments.
Let’s say your accelerated bi-weekly mortgage payments are $543, but you choose to round up to $600 instead. The extra $57 will do wonders for your mortgage, and chances are you will barely notice a difference in your monthly budget.
- Toss any ‘found’ money at your mortgage payment each month
Who doesn’t love the surprise of a little unexpected cash? You know, a birthday cheque from a relative, or a bonus at work. These are examples of ‘found’ money. And found money can be easily applied to your mortgage without any impact to your budget because it wasn’t money you were expecting or counting on.
- Make a lump sum anniversary payment
Taking advantage of this by making a lump sum payment – even if it’s as small as $50 a year – is a great way to chip away at your mortgage.
For example, an annual lump sum payment of $250 on a $400,000 mortgage at 3.50 percent over 25 years, combined with a bi-weekly payment frequency, will decrease your mortgage amortization by over 3.5 years.
- Stay informed
Once you have a mortgage and start making your payments, it can be easy to just forget about it. After all, it’s just another automatic payment. But you’re not here just to pay your bills like clockwork. To be an informed homeowner, you need to keep up-to-date on interest rates and new mortgage options. You could potentially save a ton of money just by understanding what your options are. Let’s say interest rates have dropped since you took out your mortgage a few years ago, but you are in the middle of a five-year fixed term with your bank. By understanding what the penalties are for breaking your mortgage, and reapplying for a lower interest rate, you could potentially save thousands of dollars over the long run. Remember, the best mortgage is the one that works for you.
While paying down your mortgage early will mean less interest paid over the lifetime of the loan, and a shorter amortization schedule, it’s not always the best decision for every homeowner. We’re here to help. When you work with Rampone-Marsh Mortgages, the relationship doesn’t end once the papers are signed. We’ll keep you advised of your progress, consistently helping to improve your personal wealth with sound feedback and advice throughout the life of your mortgage. Get in touch with our team mortgage brokers to learn more. We love helping our clients save money!