Many people today are intent on paying off their mortgage as quickly as possible. While most mortgages are amortized over 25 years, below are tips to implement if you want to be mortgage free as quickly as possible. If you follow all the suggestions below, your mortgage can be gone a lot quicker than you think:
- Never get an open mortgage at a fixed rate unless you plan on paying off within its term.
Today’s closed mortgages generally offer 10-20% prepayment privileges, and can usually be obtained at 1% or more off the posted rate. Open mortgages at fixed rates carry higher interest. Why pay higher interest unless you are going to exceed this 10-20% prepayment? You can always make bigger lump sum payments at renewal time with no penalty.
- Use accelerated weekly or bi-weekly payments.
Accelerated weekly payments are equivalent to a quarter of your monthly payment. Accelerated bi-weekly payments are equivalent to half your monthly payment. Both of these methods enable you to make one extra monthly payment a year – the effect of this alone reduces your amortization from 25 to less than 21 years.
- Give your mortgage the same raise as you get each year.
If your income goes up 10%, so should your mortgage payment. This extra increase in payment will go directly towards principal repayment.
- Give your mortgage a portion of any bonus or extra income
If you spend 30% of your income on your mortgage, then 30% of extra income should also go to your mortgage in the form of a prepayment. This bonus portion will go straight towards principle repayment.
- Keep your payments the same even if you renew at a lower rate.
Since you know you can afford to pay at this level, don’t decrease your payment when you negotiate a lower rate. The difference in payments between your new rate and the old rate will go directly to the principal.
- Use your income tax return to put a lump sum payment towards your mortgage.
This is extra money that is not used in your monthly budget. Don’t indulge – make it really benefit you.
- Use extra money from your budget.
Most financially sound people have a budget that they live by, if you have a little bit extra then apply it to your mortgage. Minimum prepayments can be as little as $100/mo.
- Round up your mortgage payments.
Why not round off that $656 bi-weekly to $660 or $675? You will be amazed at the difference.
- Consider a variable-rate mortgage.
While the fluctuation will keep some people awake at night, those who can endure the rate adjustments can save money. Some variable-rate or adjustable-rate mortgages are up to 0.45% below prime.
- Seek independent financial advice.
While some bankers do look out for your best interest, they work for the bank and not you. Their branch, organization and shareholders all have a financial interest in lending at higher rates, hopefully having you keep your mortgage for a long time. Talk to your financial planner, mortgage broker or talk to a financially savvy friend.
I know that these steps take discipline and dedication, but the one thing that most financially successful people have in common is discipline. If your top discipline is paying off your mortgage quickly then these are the tips to do it.