Paying off your mortgage sooner than expected is always a good idea but should be accomplished wisely. The balance between saving and living well is a personal choice and should be worked with, not stressed about. Your mortgage payment should be a comfortable payment, one that allows a full life with the choice of paying more on your mortgage when you want. There will be good years and better years and with a good understanding of your options, you will achieve paying your mortgage off faster.
Fixed or Variable
The
main factor affecting your mortgage payment is the interest rate; and
there are many factors affecting that rate. Things like the
economy, fiscal policy of the bank of Canada and lender outlooks to the
future all play a part in the ebb and flow of residential mortgage
rates.
First off, you need to decide
what risk
tolerance you are able to take because a variable rate fluctuates with
the lenders prime rate and that rate follows the Bank of Canada rate;
while a fixed
rate mortgage will remain the same for the
term (contract period like 3 or 5 years). Research shows that
over 80% of the time you will save
money with a variable rate mortgage but again if you are unsure of your
feelings maybe a fixed rate mortgage may be the best route to go in the
short term.
Pre-Payment Options
almost every mortgage has pre-payment options where you can pay a pre-agreed amount on to the principal amount owing without penalty. This can either be an increase to the monthly payment or a yearly lump sum. If you can increase your monthly payment by as little as 5% you will shorten the amortization of the loan and save thousands in interest. Chances are.... you wouldn't miss an extra few dollars a month, but you sure would notice not having a mortgage payment a few years earlier than expected.
Bi-Weekly Payments
When you choose bi-weekly payments you are in essence making one extra payment per year. A monthly payment equals 12 per year while bi-weekly payments (half your monthly payment every two weeks) is 26 payments equaling 13 payments per year. This payment is applied directly to the principal amount of the mortgage and will save you thousands in interest and years off the amortization of your mortgage. Just ensure you are not in a bi-monthly payment plan as that is setting your payments twice a month (example: the 15th and 30th or each month) and does not create any interest savings or reduced amortization.
Make Mortgage Interest tax deductible
In Canada the interest paid on your mortgage is not tax deductible unless you use your home as collateral for money you invest. when the proceeds of the loan is invested, the interest you pay then becomes a tax deduction. The tax deduction you gain can be used to pay your mortgage off quicker while you are hopefully realizing gains in your choice of investments.
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