So you went through with it – you bought a home and have a mortgage (congratulations!) – now, how do you pay it off as fast as possible?
I’m sure the mortgage document you signed for 25 years seemed to be a little bit daunting at the time but we are here to share some tricks with you to get that 25 years reducing as fast as possible.
1. Change your Payment Frequency to Biweekly
Without getting too complicated and explaining how interest is compounded on your mortgage, we will just simply say that the more often you make payments on your mortgage the faster your principal reduces – which results in lower interest costs.
Most people have their pay scheduled on a biweekly basis and you can even have it matched up so your mortgage payment is coming out of your account the day you get paid.
For example, a mortgage of $200,000 with a five year fixed rate of 2.69% and amortized over 25 years – if you went with biweekly accelerated payments (versus monthly) you would reduce your mortgage by almost 4 years!
2. Adjust your Mortgage Payment and Round it Up
Most mortgages have ‘prepayment allowances’ built in as one of the features of your mortgage. What this means is your monthly payment can be increased by a certain amount – anywhere from 20% – 100%.
If you have a mortgage payment of $1219 a month and you adjust it to round up to $1300 a month, you are making a major dent in your mortgage and will take approx. 3 years off your loan.
3. Take Advantage of your Lump Sum Payment Allowance
On top of increases on your monthly mortgage payment, you can typically make lump sum payments each year. The maximum you can put on can range anywhere between 10%-25% of your original mortgage balance.
You might have additional savings that you put aside each month, or maybe you receive commissions or bonuses through work – these would be great ways to accumulate a lump sum yearly. If you get into the habit of putting extra money on your mortgage, you will take years off!
Always be sure to check with your mortgage agent to see what your prepayment allowances are. You don’t want to exceed this allowance, as you could be charged a penalty.
If you follow these tips you will be mortgage free before you know it!
Have a story idea, comment or want to be a contributor? Connect with us at [email protected] today!