I Am Begging You...

...To Pay Off Your Mortgage Faster!

One of the common features of a mortgage is the ability to pay a certain percentage off each year or increase your payment again by a certain percentage.  The percentages are generally 10%-20% per year.  Funny thing is, many people are very interested and intent on ensuring a mortgage provider allows this percentage, but people seldom use it.

I do wonder why this feature is rarely taken advantage of and I think there are some simple answers:

We forget that we can because of our busy lives, we may even be lazy, or forget how to do it.  I would say the worst is because of job loss or unexpected major debt, and this is very understandable.  Not so with the first few possible excuses.

Please consider that all you need to do is secure your lenders service phone number and your mortgage number and you can tell the lender you want to add $10/$15/$20/etc to a payment.  That amount comes off the principle with nothing going to interest.  Each time you apply even a small amount to your payment your mortgage reduces faster, which puts more money in your pocket faster.

By slightly increasing your mortgage payment, you are making a small investment that you won't miss and does so much for increasing YOUR wealth.

What the Heck IS Amortization?

am·or·ti·za·tion

 noun 

\ˌa-mər-tə-ˈzā-shən also ə-ˌmȯr-\

---

Amortization is the total time it will take to pay off your mortgage.  Traditionally, a mortgage begins with a 25 year amortization; however, over the last couple of years federal regulation has changed, allowing any number to be amortized, up to 30 years.

You must be aware that the longer the amortization:

a. The lower the payment

b. The higher the interest

c. The less paid off at the end of the term (typically 5 years) 

I recommend that the traditional 25 years is the best choice, except in one situation:

If you use 30 year amortization in the short term, and later take advantage of a pre-payment privilege by increasing the payment as much as possible each year, by increasing your payment you will decrease the amortization.  If you pay a little more per payment, you will pay off your mortgage rapidly.  

Tips to Pay Off Your Mortgage Sooner

Client's often don't realize the cost of principal and interest, and how it multiplies over the course of a mortgage - often amounting to more than the initial home purchase price.  The fact is, taking even the smallest steps now will make a HUGE impact in the long run.  

The following are some easy tips to be "mortgage-free, sooner:"

1. Accelerate your payment frequency.

• Choose a bi-weekly accelerated payment.  Instead of making 24 payments a year, you will make 26 - which can take off up to 6 or more years from your payments.  Accelerated weekly, even faster.

2. Amortize frugally.

• If you can afford higher payments, choose a shorter amortization period. 

3. Make lump sum payments.

• Making a $1000 prepayment in the first year on a $300 000 mortgage will save more than $4 500 in interest in the long run.  And making $1000 prepayment every year will produce long-term savings of over $50 000 and take off four and a half years off the amortization period.

4. Adjust your payment.

• If your term is nearing its end, right now interest rates are at "near-historic lows," now may be the time to increase your monthly/bi-weekly/weekly payments.  Every little bit helps.

As you can see, these are very simple, small steps that move you forward on your payments, so you can put your mortgage behind you!

These tips were taken from the Invis Home & Mortgage Magazine, "Tips for Reducing Interest Costs," edited by Ajay Soni & Steven Moyes. Volume 1 Number 1/2010.  Check out www.invis.ca for more information.