Presented By
CIBC Pace It
Most Canadians focus on their mortgage rate. But if you want to save thousands in interest and shave years off your debt, put these tips to work for you.
Each month add a set amount to your regular mortgage payment. Even an extra $15 or $25 per payment adds up. For instance, if you paid bi-weekly and added an extra $25 per payment, after five years you would have reduced the principal loan by 2.5% over the life of the debt (assuming a 2.85% fixed five-year rate on a $450,000 mortgage amortized over 25 years), for more than $7,350 in savings.
Do you get a bonus from work? What about an annual raise? When your annual, monthly or hourly payroll increases, consider applying the extra to your mortgage. You won’t miss the money as you’re already disciplined about living on the original sum you were earning—and the extra funds will go a long way to reducing the principal mortgage debt.
If you want to pay-off your mortgage debt faster, a good, safe bet is to double-down on your regular mortgage payments in any given year. By paying double the amount you typically owe, say four times per year, you can shave a thousand or more off what you owe and this translates into months or even years off the amortization.
Getting a refund this year? Use your refund to pay down your mortgage. Your regularly scheduled payments won’t change, but when it comes time to renew you’ll be thankful for the lump-sum prepayment.
If you invest in bonds or GICs, consider using these investments to pay off your mortgage principal once they mature. You’ll be trading in one low-risk investment—for another low-risk investment (a return on bonds or GICs for a paid off mortgage), so you won’t be adding risk to your expected, future return.
If you recently came into some unexpected money—say, through an inheritance or because you won the lottery, or even an unexpected investment gain—use the sum to pay down your mortgage principal. Keep in mind that every lender and every mortgage have their own prepayment rules. Some allow monthly double-up payments, some allow as much as a 20% lump-sum prepayment (of your original mortgage principal). To save yourself from incurring a prepayment penalty read your mortgage document or contact your mortgage lender.
This article is presented by CIBC Pace It, as part of the MoneySense guide to debt management.
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