While working with Kitsilano real estate I often get asked how to most effectively pay off a mortgage. Even though purchasing your first home is a major accomplishment paying off your mortgage as early as possible will be one of the best investments you budget for. To help relieve some stress I have put together a list of suggestions to help you save more money and pay off your mortgage faster.
5 Tips for Paying off your Mortgage Faster
1. Accelerate monthly payments to bi-weekly payments. This will allow you to reduce your amortization schedule by a few years.
Example: If you had a $300,000 mortgage which was set to monthly payments with an interest rate of 3% over 25 years your cost would be $125,920.44 in just interest. But if you accelerate your payments to bi-monthly installments you can potentially cut off 3 years from your amortization plan and save $16,058.57.
2. Funnel all unexpected sources of income towards your mortgage payment. This includes work bonuses, birthday money from the parents, tax refunds, etc. These kinds of funds are referred to as Found Money and can be forwarded to your mortgage because it wasn’t money you were counting on.
Did you know: A onetime installment of $5000 on a 30 year mortgage of $250,000 at 3.75% can decrease your mortgage amortization by over 1 year.
3. Don’t settle for uneven numbers on your mortgage payments. By rounding up your mortgage payments you can save a large amount of interest for a few extra dollars a month. If you currently pay $563 on a bi-weekly payment plan, simply round up your payments to $600 a month. This will make your accounting easier and it will also shave a few years off your mortgage plan.
4. Utilizing your tax refund from RRSP contributions is another great way to make lump sum payments to your mortgage. Consider increasing the contributions you make to your RRSP as these refunds will continue to work in your benefit.
5. Try to match your increases in annual income with an increase in your annual mortgage payments. Raise your payments parallel to your increased income after tax. Since you’ve adjusted a lifestyle of paying off a mortgage already, allot the newly earned income to paying off your home.
Of course there are other variables to consider when deciding to accelerate your monthly payments but if you are ready to take it to the next level, I’m sure these tips will be of use to you. If you would like to discuss Kitsilano real estate please feel free to contact me today.