How You can Pay Down Your Mortgage
Buying a your home, whether it’s your first home or your dream home, is one of the best investment you will ever make. That’s primarily due to the fact that you can pay off your mortgage and build equity in your home over time. On the other hand a renter will keep paying rent and will more than likely see their rental payments increase over the years.
You can calculate your mortgage using a mortgage calculator. From the moment you make that first mortgage payment, you will probably be dreaming of the day when you can make your last one and be "mortgage-free.” For most people that day is pretty far off in the future, but it is possible to speed up the process.
Your REALTOR® will be able to advise you on ways you can pay down your mortgage as quickly as possible. This should help you when you're arranging financing on your home. Ensure you fully discuss all your options with your financial institution prior to selecting a mortgage.
Amortization schedule
Shortening the amortization period is one of the best ways to pay off your mortgage faster.” By choosing a shorter amortization, you will not only pay for your home in less time, but you will make substantial savings in interest too.
When you using a mortgage calculator, the most common mortgage amortization is 25 years. By shortening that period to 15 years, you will erode the amount of money you owe much more quickly and make fewer interest payments. A shorter amortization period is not suitable for everyone since it does mean you will be making higher monthly payments, but for those who can afford this cash outlay the long term savings pay off.
Normally a mortgage payment is structured so that it is blended and applies to both principal and interest so near the beginning of the mortgage the amount of interest pay is very high. However more and more is applied to the principal with each payment. Ask your real estate agent to provide you with examples of how your payments would look amortized over 25 years compared to 15 years.
Options for Payments
The more popular payment choices today are semi-monthly, bi-weekly and weekly versus the previous preffered payment method of monthly. With these types of payment options you will reduce the amount of principal you owe faster because you make payments on a much more frequent basis and less interest is accrued. Many mortgages also offer homeowners the option of making an additional payment each year or increasing your payment each month. Making the equivalent of one extra payment a year can save you a considerable amount over time.
Anniversary date
Many different types of mortgages permit you to make a lump sum payment on the mortgage anniversay date. Again this reduces the amount of money you pay interest on resulting in long term savings. It’s wise to find out what “pre-payment” privileges are available on the mortgage you choose.
Your REALTOR® along with either your bank, trust company or mortgage broker can help you look at all the possibilities for financing your home and can tailor a mortgage that fits your income and your goals.
Shop around
Look for a mortgage that has as much flexibility as possible. Be sure you can make at least one extra payment a year and can choose the payment plan that works best for you. Your REALTOR® is experienced and knowledgeable about the many mortgage options and the types of payment plans available and can act as your guide to help you become mortgage free sooner.
Article by Patricia Hodge-Rendall, Broker, Remax Realty Specialists Inc., 1-866-675-3434
