Buying a home is often the largest and most fulfilling investment you will ever make. Home ownership, in most cases, involves the responsibility of carrying a mortgage. Most mortgages are paid over a 25-year period.
Here are some tips to help you pay your mortgage off faster. Not only will this reduce the number of years you’ll be making mortgage payments, paying your mortgage off faster can add up to big savings.
There are basically two ways to “pay down” your mortgage and get out of debt faster: making lump-sum payments, and increasing the amount and frequency of your payments.
Making Lump-Sum Payments
You can make a one-time or annual lump-sum payment on most closed mortgages. The amount of the lump-sum payment usually varies by product and by financial institution, but typically ranges from 10 to 25 per cent of your original mortgage amount. A lump-sum payment is directly applied to your outstanding principal if there is no outstanding interest owing. This saves you money by reducing the interest you pay over the course of your mortgage.
• Set aside a lump sum each year to apply against the balance of your mortgage. You can save thousands of dollars in interest and shorten the time it will take to pay off your mortgage.
• Don’t forget that you can make a lump-sum payment of any amount without having to pay any associated prepayment costs on your mortgage renewal date. Even a small lump-sum payment can add up to big savings.
Increasing the amount and frequency of your payments
Increasing your payments, even by a few dollars, lets you pay down your principal faster. This is simply due to the fact that any increase in your regular mortgage payment is applied directly to the principal reducing the length of time it takes to pay off the mortgage.
Also, increasing the frequency of your payments will save you money in interest charges over the long run and will let you pay down your principal faster.