Every homeowner knows that the best mortgage is no mortgage at all. So what can you do to pay down your mortgage faster — and save possibly thousands of dollars of interest at the same time? Consider these three strategies.
Pay more frequently
Many people choose a “traditional” payment schedule, paying their mortgage on a monthly basis. But switching to an accelerated weekly or bi-weekly (every other week) schedule will reduce your principal faster, because you make the equivalent of one month’s extra payment every year. How much will you save? Assuming a $250,000 mortgage at 5.5% amortized over 25 years, changing from monthly to accelerated weekly payments will save you $37,863 in interest over the life of the mortgage (assuming interest rates stay the same) and you’ll own your home almost four years sooner.
Increase your regular payment
With a BMO mortgage, you can increase your mortgage payment by up to 20% of the original mortgage amount or up to 10% for a Low Rate Fixed Closed Mortgage once each calendar year. Increasing your regular mortgage payment — by even a small amount — can make a huge difference over the long term. For example, suppose you have a $200,000 mortgage at 5% amortized over 25 years. Your regular monthly payment is $1,163. Now, suppose you top that payment up to $1,200. That’s just an extra $37 each month, but over the life of the mortgage, you’ll save $10,034 in interest and be mortgage-free after about 23 1/2 years instead of 25.
Make a lump-sum prepayment
With a BMO mortgage, you can prepay, in $100 increments, up to 20% of the original mortgage amount, or up to 10% for the Low Rate Fixed Closed Mortgage each calendar year, without charge. If you have the extra cash, it really pays to take advantage of this option. Suppose you have a $180,000 mortgage at 4.75%, amortized over 25 years. If you can prepay $10,000 at the end of the first year, you’ll save $19,229 in interest and be mortgage free almost three years ahead of schedule.
Trevor Reid, Mortgage Specialist
Phone: (705) 725-3734 Cell: (705) 734-7950
Website: BMO Mortgage Specialist