Murder your mortgage

Save a fortune by paying higher house payments.

by MoneySense staff
February 1st, 2009

From the February 2009 issue of the magazine.

If you’re leery of the stock market and don’t know where to turn for a good investment in these perilous times, start at home. Bumping up your mortgage payment can save you a fortune over the years ahead.

Consider a couple we’ll call Domenic and Joanne. They live in Calgary in a three-bedroom, two-storey home. They owe $200,000 on their mortgage at 6.5%. Right now, they are making monthly payments of $1,340 and are on track to pay off their house in 25 years. Based on their current schedule, they will wind up paying more than $200,000 in interest over the life of their mortgage. But consider what happens if they’re willing to pay a little more.

1st scenario: If Domenic and Joanne simply increase their monthly mortgage payment by $180 to $1,520 a month, they can pay off their mortgage in 19 years and save $53,510 in interest costs.

2nd scenario: If Domenic and Joanne split their current monthly payment in two and pay every two weeks instead of monthly, they increase their total mortgage payments from $16,075 a year to $17,415 a year. That means they pay off their mortgage in 21 years instead of 25 years, and save nearly $40,000 in interest costs.

3rd scenario: If Domenic and Joanne keep making their current monthly payment, but add an additional payment of $7,000 once a year, they pay off their mortgage in 13 years and save $107,000 in interest.

In most cases, homeowners can arrange to take advantage of any of these options simply by calling their bank. But whatever strategy Domenic and Joanne choose, they should resist the temptation to choose banks’ latest mortgage deal, which consists of the ability to skip a payment once a year. While that may seem enticing, such a strategy would stretch out Domenic and Joanne’s mortgage payments to almost 31 years. They would pay a whopping $263,000 in interest costs over the life of their mortgage, or $61,000 more than if they had stuck with the original 25-year monthly payment schedule.

15 comments on “Murder your mortgage

  1. If you have sufficient self-discipline, I would recommend making regular (or semi-regular) lump-sum prepayments instead of increasing the monthly mortgage payment. If you can achieve the same result without obligating yourself to continued higher payments, why would you?

  2. Mortgage is a slow robbery program! Just take a secure credit line and pay your house in 5 years. If you cannot pay the house off in 5 years – downsize yourself! Be realistic! Buy what you can afford! Don’t listen realest agent, he makes more money if you buy more expensive and does not care how you will pay it off. Most likely you will never see the agent after deal is closed.

  3. Mortgage is a slow robbery program!
    Just take a secure credit line and pay off your house in 5 years.
    If you cannot pay the house off in 5 years – downsize yourself!
    Be realistic!
    Buy what you can afford!
    Don’t listen real-estate agent, he makes more money if you buy more expensive house and does not care how you will pay it off.
    Most likely you will never see the agent after the deal is closed.

  4. Superb article, I’ve saved this internet site so hopefully I’ll discover more on this subject in the future!

  5. this was a very entertaining read. i enjoyed it very much!

  6. Hi, i think that i saw you visited my site so i came to “return the favor”.I am attempting to find things to improve my website!I suppose its ok to use some of your ideas!!

  7. Thank you for the write up! Also, just a heads up, your RSS feeds aren’t working. Could you take a look at that?

  8. Man I like your post and it was so informational and I am definetly going to save it. One thing to say the Indepth analysis you have done is trully remarkable.Who goes that extra mile these days? Well Done. Just another suggestion you shouldget a Translator for your Worldwide Audience :)

  9. This is absolutely gold. I was not expecting that I’d get so much out of reading your write up! You’ve just earned yourself a returning visitor :)

  10. Congratulations Wally! I truly appreciate all of the help you have given to me. Mari, Physics together with Astronomy

  11. I would be great if you could point me in the direction of a good platform.

  12. As being a, an issue that I’m just captivated with. I’ve truly looked for understanding of that grade the past a lot of time. Your internet site is tremendously relished.

  13. I’d wish to thank you for that efforts you might have created in writing this write-up. I am hoping the exact same greatest perform from you within the potential as well. In reality your creative writing skills has inspired me to start my very own BlogEngine blog now.

  14. Thank you for the post, it was useful. Deer Antler Velvet is my preferred Chinese medicine of choice. I have tried ginseng before and it just does not compare. -JT