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