|
Page 6 of 11 ACCELERATE YOUR MORTGAGE
TACTIC 1 - CHANGE TO BI-WEEKLY/WEEKLY PAYMENTS
Increase the frequency of your mortgage payments - Most lenders will offer a variety of mortgage payment options from monthly, bi-monthly, bi-weekly accelerated, and weekly. If you can manage to make your mortgage payments on a bi-weekly accelerated schedule, you will effectively shave years off your mortgage because you will be making two extra payments a year. Since a year has 12 months, if you paid monthly, you would make twelve payments. A year has 52 weeks, so if you made bi-weekly payments, you would make 26 payments.
One of the easiest ways to be mortgage free faster is to take advantage of the weekly or bi-weekly payment options offered by your lender.
For example, just by making accelerated bi-weekly payments of $447 on a $150,000 mortgage (at 5.25%) instead of monthly payments of $894 would enable you to shave almost 3 years and 7 months off your amortization and save over $19,000 in interest over the life of your mortgage.
Accelerated bi-weekly
Here is an example of how the accelerated payment option works:
Example:
Assuming a monthly payment of $1,000.
If you select a regular bi-weekly payment schedule, the following calculations would apply:
$1,000.00 (monthly payment) X 12 months per year
26 payments per year
|
= |
$461.54 per regular bi-weekly payments |
|
$461.54 per payment X 26 payments per year
|
= |
$12,000 per year contributed towards your mortgage |
|
| If you select an accelerated bi-weekly payment schedule, the following calculations would apply: |
|
$1,000.00 (monthly payment)
2
|
= |
$500.00 per accelerated bi-weekly payment |
|
$500.00 per payment X 26 payments per year
|
= |
$13,000 per year contributed towards your mortgage |
|
With the accelerated bi-weekly payment, you would pay an additional $38.46 per payment and contribute an additional $1,000.00 per year towards your mortgage. This would help you to reduce your amortization and pay off your mortgage faster.
|
TACTIC 2 TAKE ADVANTAGE OF INCREASING PAYMENT OPTIONS
When you sign up for a mortgage, lenders may offer increased payment options. What that means is that each year of your mortgage term you can increase your set payment by a certain amount from 10% to 25%. Every time you increase your payment, a larger portion of that payment goes toward paying off the Principal of the mortgage rather than the interest.
TACTIC 3 - MAKE LUMP SUM PAYMENTS
Each lender offers lump sum prepayment options. Typically, banks offer anywhere from 10% to 25% lump sum prepayment options. That means that you would be able to make extra payments that would accumulate up to 10-25% of the original mortgage amount each calendar year without any penalty. Each time you make a lump sum payment, the entire amount goes toward paying off the principal, saving you a lot in interest in the long run.
TACTIC 4 - SHORTER AMORTIZATION PERIOD
The amortization period represents the actual number of years it takes to repay a mortgage loan in full. Therefore, a shorter amortization period would increase each mortgage payment, but you would pay it off more quickly, resulting in substantial savings over the life of the mortgage.
TACTIC 5 - PAY NOW, SAVE NOW
The greater the down payment, the smaller the mortgage. If you have 25% or more of the mortgage as a down payment, you will avoid having to pay Mortgage Insurance. Mortgage insurance protects your lender against payment Default. The premiums range from 3.25% to 0.65% of the mortgage. These fees are added to the mortgage amount, so if you can increase your down payment, you will save a bundle in the long run.
TACTIC 6 - Switch/TRANSFER OR REFINANCE FOR A BETTER RATE
If you are currently in a mortgage with a high rate, you may want to consider transferring your mortgage to another lender that offers a better rate. If you switch or transfer at the time of renewal, most banks will pay most of the costs to win your new mortgage business as long as you do not change the outstanding mortgage amount. Sometimes it may pay to refinance your mortgage prior to the renewal date. If you do so, you will incur prepayment penalties and other costs such as legal and Appraisal, but if there is a much better rate available to you, it definitely could be worth the exercise. If you can pay out your mortgage penalty outside of the mortgage, then it could be considered a switch/transfer. But if you need to roll the amount into the mortgage, then it would be considered a refinance.
|
