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Paying Off Your Mortgage Faster

It’s common nowadays to have a 25-year mortgage at a fixed 5-year interest rate, the average of which is about 2.7%. While the current interest rates are extremely low, no one ever truly knows when they will increase, and by how much; so if it’s manageable, it is always wise to reduce the amount of time it takes to pay off your mortgage.

The key to achieving this is saving. Set aside the maximum amount of money you can from each paycheque. If you already implement this routine savings plan, then you’re already well on your way.

Next, ask your lender about increasing your monthly payments. Depending on the institution, they can offer prepayment privileges as high as 20%. This means that you can increase your payments each month by 20%, or you can apply lump sum payments of up to 20% of your original mortgage amount once per year.

Do the math. If your regular payments are $2,000/month for 25 years with no increase, then your payments and length of payments will be the same, and you will have to abide by the current mortgage rate. However, if you increase your payments by $2,400/month, by the end of your five-year term, you will only have 15 years left instead of 20, which allows you to take advantage of the low mortgage rates as much as possible.

If you’re a great saver, then work on applying large lump sums directly on your capital each year rather than on a monthly basis. This will actually reduce your monthly interest fee as well as your amortization period. Of course, it is a more difficult feat, but it can and has been done before.

There is a lot of flexibility when it comes to paying off your mortgage. If you would like to explore your payment options, contact Rose Blankenagel at Mortgage West—The Mortgage Centre today to find the best solution for your household.