Ways to Save Money and Interest Costs on Your Mortgage
The main benefit to paying off your mortgage faster is reducing the overall amount of interest that you pay on your mortgage. What is one way you can do this? By using payment privileges provided by the mortgage lender. Depending on the type of mortgage you have, either open or closed, these are your options: With OPEN mortgages you can make extra payments of any amount as well as fully payout your mortgage at any time, without penalty. However, you usually pay a higher interest rate for this type of mortgage and privilege. CLOSED mortgages are the more common choice and also offer privileges for paying down the mortgage faster with the ultimate benefit of reducing the interest you pay over the life of your mortgage. These programs differ from lender to lender. At the end of the day, you would not choose a lender based solely on this. Payment Privileges usually offer a Few Different Options:
• Annual or periodic lump sum payments: Payments from 5%-25% of the original principal mortgage amount are allowed each year without penalty
• Increase your payment: You may also increase your current payment by 10% or even 100% each year.
• Double your payments: Some lenders also offer the option of doubling any and all payments.
• Accelerated payments (not monthly): Choice of weekly, bi-weekly, or semi-monthly payment.
The more often you make payments, usually the faster the mortgage is paid off. You usually end up making a few extra payments towards the mortgage each year because of the payment option you choose.
An example of how taking advantage of even one of these privileges can save you thousands is easily illustrated with the Accelerated Payment Privilege:
On a $280,000 mortgage that is amortized for 30 years at 3.5%, the regular monthly payment would be $1253.38.
The accelerated bi-weekly payment would be $626.69.
This would allow you to pay your mortgage off in 26 years instead of 30 just by changing your payments to accelerated bi-weekly (every 2 weeks)!
If you were to make a lump sum payment of 2% each year on that same mortgage with accelerated bi-weekly payments, you would pay off the mortgage in 16 years & 11 months and save $53,432 in interest expense...all for an investment of only $5600 each year, and you would be mortgage free 13.1 years earlier!
What is another great way you can save money on your mortgage?
Currently, there are some fixed mortgage interest rates at all time lows in Canadian history! So now is a great time to check with your mortgage broker to see if it is worth it to switch from your existing mortgage rate to a new lower rate. There are usually penalties involved to payout your existing mortgage early as well as possible appraisal and legal fees. But even with all those fees it could be well worth it and save you possible thousands of dollars in interest costs on your mortgage!
Find TRusted Mortgage Brokers here in the SASKATOON MORTGAGE Category on THE Saskatoon directory of excellence.
Tip provided by Tamara Mezzo- who was a Previous Trusted Saskatoon Mortage Broker