Friday, October 3, 2008

5 Proven Strategies to Become Mortgage Free Faster

1) Accelerate your payments by choosing a weekly or biweekly payment frequency and then match the due dates of your mortgage payments with your pay days. It is easier to budget and of course you get the benefit of paying the equivalent of one extra monthly payment per year with no penalty. The bank takes your monthly payment and divides it in half for biweekly payments or in quarters for weekly payments. So since there are 26 biweekly payments or 52 weekly payments in a year you actually pay the same dollar amount as 13 monthly payments over the course of the year which means you pay off your mortgage that much faster and save loads in interest.

2) Look at how much your payment would be based on a 20 year amortization instead of a 25 year amortization. If you can afford the extra then you'll save on interest charges in the long run and be mortgage free faster. This is a great strategy for refinancers or at renewal when your interest rate might actually go down from what you were previously paying. If your rate drops at renewal, consider keeping the monthly payment amount the same ... after all, you are already used to paying that much and the extra will go directly towards reducing your principal.

3) Did you ask about the prepayment privileges on your mortgage when you took it out ? Have you taken advantage of them yet ? I didn't think so. In fact, studies show that only 3% of consumers actually take advantage of that prepayment option. Every extra dollar you pay indirectly goes right back into your pocket. Save interest and be mortgage free faster by prepaying the allowed amount - usually 20% of the original amount you borrowed - once a year. Even if you can't afford to pay the whole 20% ... if you can only afford $1,000 it will save lots of interest in the long term. Increase your principal and interest portion also by that 20% (please check your mortgage document for details of your lender's plan). Most lenders also allow a double up option and of course if you have a life changing event along the way which reduces your income, they should allow you to return to previous levels. Your budget gets the breathing room back by lowering your payments and of course you've locked in some savings already. By taking advantage of this strategy and the accelerated payment option we discussed in point #1 you're well on your way.

4) Get a raise last year ? Instead of just wondering what happened to the extra money why not put it aside into a special account for a lump sum prepayment ? Use that money to pay down the mortgage or maybe you could use it to set up the basement for a rental opportunity to increase your income.

5) Use a mortgage professional. This should be strategy number 1 for every Canadian. Your bank is in business to make money - and lots of it. They will not give you the best deal and even if they "cave in" and shave off a quarter percentage point or offer free chequing for 6 months ... this is not the kind of deal you can get right off the bat by using a mortgage professional. And best of all the services of a mortgage broker are usually free to the consumer (on approved credit) since the bank pays us to bring them your business.

If you have any questions about taking advantage of any of these strategies, please contact our mortgage broker resource at RMA-Spencer Group Mortgages. Their website has a handy glossary and other tips to help you get the most of of your mortgage rather than the bank.

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