John Jordan, CFP...providing Specialized Financial Planning Solutions

Mortgage Advice - Tip #3

How to pay down your mortgage quickly

Increase your payment frequency

When you make a mortgage payment, part of that payment goes towards paying the interest due on your debt, while any remaining money pays off the principal owing on your mortgage. This is important, because your new principal balance will be used to determine the interest expense on your next payment. As you increase the payment frequency (i.e. Pay your bi-weekly instead of monthly) you pay down your principal faster, and in turn lower the amount of interest paid on your debt.

Take advantage of your pre-payment privileges

Another way to pay down your principal owing faster and reduce your interest expense is to take advantage of any pre-payment privileges that your institution grants you on your mortgage.

These privileges can take the form of double-up payments that allow you to effectively double the amount of payments that you make toward your mortgage in any given month, or annual lump sum pre-payments that allow you to make a payment once per year against your mortgage. The maximum allowable pre-payment is usually based on a percentage (10%-15%) of your original loan amount.

Have more than one term in your mortgage

When your mortgage term expires, you are able to make any amount of payment toward your debt prior to renewing for a new term. By dividing your mortgage into more than 1 term (see tip #2), you are able to increase the frequency at which you can make additional pre-payments on your debt. For instance, a borrower that has their mortgage split between a 3-year and a 5-year term has one more opportunity to make a lump sum payment (after year 3), instead of having to wait until the single term expires if they chose just a 5-year mortgage.


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