Tips for Saving You Money with Your Mortgage
Is Your Mortgage Putting You in the Poor House? Smart Strategies to Save Money with Your Mortgage
Here’s some practical advice on how to save money with your mortgage. You can implement these sensible strategies immediately and start saving today!
Your home is the single largest purchase you will make in your lifetime. Therefore, the largest debt you will ever carry is your mortgage.
Did you know that it will cost you $581,597 to pay off a $200,000 mortgage loan at a rate of 5% amortized over 25 years?
The good news is that there are some mortgage strategies that you can easily implement to help reduce the high rate of interest costs and save you money.
Using the example of a $200,000 mortgage loan with a 5% interest rate amortized over 25 years, the following savings will apply:
PRE-PAYMENT PRIVILEGES
INCREASED PAYMENTS
Lenders offer a variety of options to increase your payments anywhere from 15% to 25% as a way of reducing your interest costs.
You will save $37,375.38 in interest costs and reduce your amortization period by 5.58 years if you increase your monthly payment by 15% from $1,163.21 monthly to $1,337.69. This change represents an increase of only $174.48 per month.
You will save $53,036.68 in interest costs and reduce your amortization period by 7.92 years if you increase your monthly payment by 25% from $1,163.21 monthly to $1,454.01. This change represents an increase of only $290.80 per month.
LUMP SUM PAYMENTS
Generally, on the anniversary date of your mortgage loan, you are able to pay from 15% up to 25% of the original loan amount without any penalty. On a $200,000 mortgage loan, you could pay down $30,000 every year without penalty.
By doing this, you will save $108,209.25 in interest costs and reduce your amortization period by 16.67 years.
Less than 5% of all home owners holding a mortgage loan actually use any of their pre-payment privileges.
If your budget doesn’t permit a 15% - 25% monthly payment increase, any amount that is added to your monthly payment or paid as a lump sum goes directly to paying off the principal of the mortgage and reducing your interest costs.
Have you considered applying your tax refund to your mortgage? The overall savings in interest expense are substantial!
Click here to utilize our Mortgage Monitor tool and discover the savings of additional mortgage payments.
ACCELERATED versus NON-ACCELERATED
An accelerated payment option is an inexpensive way to pay more towards the principal of your mortgage loan.
A biweekly accelerated option is simply 13 months of mortgage payments ($1,163.21 x 13) ÷ 26 biweekly payments = $581.60.
You will save $24,171.89 interest costs.
PAYMENT OPTIONS
Choosing a weekly or biweekly payment option over a monthly payment option will save you interest. The more frequently you pay – the more you save.
TAX DEDUCTIBLE MORTGAGES
This is a well-known financial strategy designed to convert the non-deductible interest debt of a home mortgage to the deductible interest debt of an investment loan. Click here for more information on how to apply for a tax deductible mortgage.
ALL IN ONE MORTGAGES
Some lenders have introduced mortgage accounts that combine your mortgage, line of credit, personal loans, chequing and savings accounts. The theory is that you can save money by combining all your bank accounts into a single flexible mortgage account.
How does it work? The money from your savings and chequing accounts are applied against your mortgage so that you are reducing your mortgage limit and saving mortgage interest expense instead of collecting the negligible daily interest savings interest from your bank.
Don't let your mortgage put you into the poor house! Implement some of these smart strategies and start saving money with your mortgage today.
