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. lncreasing 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 l/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. lf 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.
We can help you find the best way to pay down your mortgage faster based on your personal situation.