For so many Canadians, it is a dream to be mortgage-free. Think about it - no more mortgage payments, lots of equity, and the freedom to do more of what makes you happy.
David Pipe, a top mortgage broker in Guelph with WealthTrack, shares some insight for homeowners who want to save money and pay less interest on their mortgage.
But the idea of being mortgage-free seems impossible if you are a young couple with a brand new $500k mortgage on a house you just purchased. This is not an uncommon scenario, and maybe it sounds similar to where you are now.
For many Canadians, there are a few other bills to pay, and when their mortgage lender offers a lump sum payment option, they don’t bother because most people don’t have an extra $10,000 lying around.
Maybe you’re starting a family and every dollar counts.
The point is that there is an easier way for Canadians to shorten their mortgage, and turn a very small increase in payment into much bigger savings down the line.
Here’s the example:
If you have a new mortgage for $500,000 at an average interest rate of 1.99% on a 25-year amortization, you could potentially turn $25/week (on weekly payments) into $39,213 over the life of your mortgage. Note that this is just one scenario, but the principle applies to different rates, terms, and principal amounts.
If your lender allows it, ask them to increase your payment by $25 each week. You may not know that many lenders will just add it to your regular payment automatically.
Why You Should Do This
- Extra payments go straight to principal, so zero interest is paid with extra payments
- You can do this automatically, and not even notice.
- When interest rates rise, you actually save MORE money
- You pay off your house 2 years faster
Now, there are those who would say this doesn’t work for them, or that you should instead invest the money elsewhere and earn more interest, or that you can save by deducting mortgage interest if you’re self-employed.
Certainly, not every strategy works best for everyone.
BUT - if you like the idea of paying off your mortgage quicker, and you like the idea of automatic, effortless savings, and you think interest rates might eventually go up (they will), this strategy is a potential fit for you.
There are lots of great calculators out there that can customize this for you.
So that’s it!