Whether you are buying your first home or renewing an existing mortgage, paying down your mortgage faster will mean more money left in your pocket. Interest adds up over the years but your costs can be significantly reduced by making some effort toward the following four mortgage strategies.
1. Increase Your Mortgage Payment
Most lending institutions will allow you to increase your mortgage payments by a certain percentage – usually between 10% and 20%. The additional payment is applied directly against your principal, reducing the time to pay off your mortgage and total interest costs.
See Also: Mortgage Payment Calculator
2. Make Additional Lump Sum Payments
If you receive any unexpected money like a job bonus or an income tax refund, applying this directly to the principal of your mortgage will contribute to paying off your mortgage quicker.
3. Negotiate a Better Interest Rate
Although current interest rates are low, you may be able to negotiate a more favourable rate from your lending institution. It will be worth your while to shop around for the best terms.
4. Increase Your Frequency of Payment
Changing your monthly payment to an accelerated weekly or bi-weekly option will shorten the life of your mortgage and reduce your interest costs. For example, if your monthly mortgage payment is $1,000 the sum of your annual payments will total $12,000 ($1,000 x 12 months). Instead of paying $1,000 a month, you pay $250 per week ($1,000 / 4), the sum of your annual payments would be $13,000 ($250 x 52 weeks). The extra $1,000 will be applied directly to your principal. These accelerated payments can reduce a 30 year mortgage by approximately 5 years.
Use this calculator to see how increasing your mortgage payment or changing the frequency of your payments can reduce the life of your mortgage and the amount of interest you pay.