Mortgages are fun. What?! Yes, I say fun because of they are very big financial instruments and small changes to them can result in significant cost savings.
If you are like me or most other Canadians, then you do not want to be burdened by a mortgage for the rest of your life. Wouldn't you love to have a mortgage burning party?
Also, putting extra money on the mortgage is actually a great investment. Why? Because there is zero risk and the rate of return is even better when you calculate the equivalent before tax return. For example, a mortgage with a rate of 3.5% is equal to an investment of 5.83% for a person with a marginal tax rate of 40%. Try to find a 5.83% investment with zero risk.
So, what are some practical tips to pay off my mortgage quicker?
1. Find budget savings to increase your schedule mortgage payment
Take a look at where your money is going and maybe you can find ways to down grade a little. A great example is cutting cable TV or home phone costs. Innovations of PVR and HDTV has brought bigger bills and are quite startling to realize what we spend annually. Try looking at what you only really need such as a free digital antenna or Voip solutions.
2. Use your annual work pay increase to increase your mortgage payment
Caution! This can be a drastic mortgage burner. If you get an annual salary raise, commit yourself to take half of the raise and apply it an increased mortgage payment. You won’t even notice it and it’s impacts are tremendous.
3. Use your work bonus to make a lump sum payment
Do you get an annual work bonus? Again, take half of it and apply it against the prepayment privileges available on your mortgage.
4. Change your frequency to "accelerated"
The term accelerated is often confused amongst people but it’s just a fancy way of having a higher mortgage payment, which of course, pays it off faster. It’s calculation is simple. Take “accelerated weekly” as an example:
$1000 monthly payment
$230.76 weekly payment ($1000 x 12 months / 52 weeks)
$250 accelerated weekly payment (($1000 x 4 weeks in a month)
5. If you renew/refinance with lower payments, keep your payment the same.
Many people are renewing their mortgage today into new historical low rates. In their previous term, they had a higher rate and thus a higher payment. When cash flow improves people tend to spend it on more stuff. After a while, you get simply get used to spending more without the satisfaction. However, be disciplined and keep the mortgage payment the same and you won’t even notice it. It can help your savings tremendously!
6. Call me today for a free mortgage check up! I may be able to help you save money.
I can analyze a mortgage situation and look for a better solution to save interest costs. At the end of my analysis I present some options and their net result to the mortgagor. I stress “net” because sometimes there are costs and penalties that make it not worthwhile. In these cases, the borrower can walk away knowing they are in a good state.