Strategies for Paying Down your Mortgage

I know its a little early for New Years resolutions but when it comes to saving thousands in interest its always a good time!!


Strategies for Paying Down your Mortgage

Set a Goal – We have all heard the saying "failing to plan is a plan to fail" so you need to at least think about what you are trying to achieve and take small steps towards that goal. For instance, decide you want to pay an extra $10,000 this year towards your mortgage, then work back and see what you need to do monthly or weekly to achieve your goal.

Establish Savings Habits – It’s pretty difficult to aggressively pay down the mortgage without establishing proper saving habits. Having the ability to generate savings brings a lot of freedom and can ultimately lead to paying off the mortgage faster.

Accelerated Bi-weekly Payments – This is a common strategy that works! By simply paying the mortgage during bi-weekly pay periods (instead of monthly) can result in an extra payment by the end of the year, which ultimately means less interest. This strategy alone can reduce the mortgage amortization by 3-4 years.

Topped up Payments – I like the strategy of topping up mortgage payments as it is forced savings. Even an extra $100 per mortgage payment can make a difference in amortization. Most fixed mortgages allow payments to be topped up by as much as 20%. One of my favorites is to have my variable rate clients set their payments at the 5 year fixed rate. That way they don't even notice the extra money going straight to the principle!!

Annual Lump Sums – This goes back to having savings habits. With strong savings, it enables the homeowner to use up some of those prepayment mortgage allowances. Most mortgages allow a lump sum payment of 15- 20% of the original mortgage balance annually. Take advantage and put large amounts when cash was available. For example, if you sell another asset (ie rental property), do well on some stocks (hopefully!!) or receive an inheritance.

Most of these items are common sense, but sometimes you need a reminder to create a new plan of action. Hope this helps!

Peter McKinnon
www.peterlmckinnon.com
peter_mckinnon@centum.ca

Mortgage Shopping Revealed!

Here are some recent stats on how consumers shop for mortgages:

Mortgage Shopping
1.96: Average number of mortgage quotes obtained by consumers.
42%: Percentage of mortgagorswho got just one quote.
I guess the idea of shopping around and saving money apparently doesn’t appeal to some folks.
6%: Number of borrowers who got no quotes.
This includes people who simply signed their renewal letter. What a painful thought.
10%: Share of mortgagors who got over three rate quotes.

Pre-payments
12%: Percentage of mortgagors who made a lump-sum pre-payment in the past year.
So many people want 20% pre-payment privileges and so few people use them.
16%: Percentage of mortgagors who increased their regular payments in the past year.
7%: Percentage of mortgagors who did both.

Rate Selection
66%: Chose fixed rates in the last 12 months.
29%: Chose variable/adjustable rate mortgages.
4%: Chose hybrid mortgages (part fixed / part variable).

Term Selection
66%: Took 5-year terms.
8%: Took terms over five years.
26%: Chose terms less than five years.

Professionals Consulted When Mortgage Shopping
70% spoke to a bank rep.
40% spoke to a mortgage broker.
Up five percentage points from last year.
22% spoke to a credit union.

Where People Went For A New Mortgage
40% went to a mortgage broker
39% went to a bank
21% went elsewhere


peter_mckinnon@centum.ca
http://www.peterlmckinnon.com/