There was an interesting story buried in the business section of last Saturday’s Free Press. The headline read: How to pay down your mortgage faster. It was a rather innocuous little piece from The Canadian Press, but the message is one that can’t be overemphasized and bears repeating.
According to a recent analysis by the Canadian Association of Accredited Mortgage Professionals, 35 per cent of Canadians who have mortgages took some kind of action in the past year to speed up the payment of their mortgage. Of course, that also means the other 65 per cent were prepared to let it ride and pay their mortgage according to the terms of the original contract.
Why isn’t everyone accelerating their mortgage payments? Personal circumstances top the list. Things happen; the car, needs of a growing family, furnishing that new home. Servicing debt levels must also be a priority. Many people have maxed out their credit cards and the interest rates being charged on those credit cards are considerably higher than the interest rate on their mortgage.
However, let’s consider for a minute you have the bulk of your expenses under control and you received an income tax refund, maybe you inherited money. What can you do to whittle down that mortgage?
Instead of paying 12 monthly payments, consider paying it bi-weekly. You can reduce a $300,000 mortgage by more than $15,000 by doing this. It’s a convenient way to sneak in an extra payment every year.
Round up your payments. If your bi-weekly payments are $475, round up to $500. You can save years on your mortgage by making a seemingly small increase such as this.
Make a lump-sum anniversary payment on your mortgage. Most financial institutions permit a lump-sum payment on the anniversary of your mortgage date.
Read your contract, find out what you are allowed and capable of paying and shave off years from your mortgage.
Put newfound money down on your mortgage. Perhaps you had a winning Sport Select bet. Instead of spending it on a treat for yourself, treat yourself to a reduced mortgage.
Of course, you also have to save for retirement, ensure your credit card balance is eliminated and deal with the rising cost of living, but if you can put a little more money down on your mortgage right now, it will free up more money later in life when you’re mortgage-free.
Mike Moore is president of the Manitoba Home Builders’ Association.
