How to become mortgage free faster
(NC)-Buying a home is often the largest and most fulfilling investment you will ever make. Home ownership, in nearly every case, involves the responsibility of carrying a mortgage. A good number of mortgages are paid over a 25-year period. However with discipline you may be able to pay it off sooner than you think. How?
To illustrate how you can save, suppose you have a 5-year, fixed-rate mortgage of $120,000 with a 25-year amortization and a constant annual interest rate of 5.80% over the entire life of your mortgage, compounded semi-annually with regular monthly payments of $754. Below are four ways that can help you pay off your mortgage faster.
1. Increase Your Payment Amount
If you increased your mortgage payment amount by just $246 from $754 to $1,000, you could save almost $47,408 in interest over the entire amortization period of your mortgage. You'll own your home about 10 years and one month sooner. Increasing your payment by even a few dollars lets you pay down your principal faster. Any increase in your regular mortgage payment is applied directly to the principal, reducing the length of time it takes to pay off your mortgage. You can increase the amount you pay on the principal anywhere from 10% to 100% depending on your financial institution.
2. Making Payments More Frequently
If you made bi-weekly payments of $377 instead of monthly payments of $754, you could save almost $19,776 in interest over the entire amortization period of your mortgage. You could own your home in approximately three years and 11 months sooner. Making payments more frequently saves you money in interest charges over the long run as this helps pay down your principal faster.
3. Use your prepayment privilege and make a lump-sum payment
If you made a $1,000 lump-sum payment every year, you could save about $22,307 in interest over the entire amortization period of your mortgage. You could own your home about four years and eight months sooner. By setting aside a lump sum each year to apply against the balance of your mortgage, you can save thousands of dollars in interest and shorten the time it will take to pay off your mortgage. Don't forget that you can make a lump sum payment of any amount without having to pay any associated prepayment costs on your mortgage renewal date. Even a small lump sum payment can add up to big savings.
4. Pay as much as you can at renewal
If you chose 5-year, fixed rate terms, and made a $10,000 lump-sum payment every time your mortgage came up for renewal, you would save about $29,675 in interest over the entire amortization period of your mortgage. You could own you home about six years and seven months sooner.
More information on how to become mortgage free faster is available from your local CIBC branch, by calling 1 800 465-CIBC (2422) or visiting www.cibc.com.
- News Canada