A lengthy mortgage term and hefty monthly payments can easily put a damper on your financial comfort. Below are several tips for paying down your mortgage faster.
1. Accelerate bi-weekly payments – Instead of paying your mortgage on a monthly basis 12 times per year, pay your mortgage every two weeks for a total of 26 payments each year. A $300,000 mortgage with a monthly payment and three percent debt service over 25 years will cost $125,920 in interest. Increase to accelerated bi-weekly payments and shave nearly three years off of your schedule, and save $16,059 in interest.
2. Round up your mortgage payments – The quicker you can pay off your loan, the more you will save in interest. So round up your mortgage payments. If your accelerated bi-weekly mortgage payments are $543, consider rounding up to $600 instead.
3. Put ‘found’ money toward mortgage payments – Unexpected sources of money such as a birthday gift or bonus at work are considered sources of ‘found’ money. ‘Found’ money can be easily applied to a mortgage without any impact to one’s budget because it wasn’t money you were counting on. A one-time payment of $5,000 on a $250,000 mortgage at 3.75 per cent over 30 years will decrease the mortgage amortization by over 12 months.
4. Make a lump sum anniversary payment – Most banks will allow you to make an extra mortgage payment each year, which is applied directly to the principal. Taking advantage of this by making a lump sum payment — even if it’s as small as $50 a year — is a great way to chip away at your mortgage.