Interest rates in Canada are at an all-time low, giving Canadians a number of innovative ways to take this savings, and either refinance their mortgage or consolidate their debt. Many are also taking this time to invest in real estate or move up or down the property ladder.
It’s also making it easier for people to start paying down their current mortgage. Below are some tips to help you take advantage of this interest rate environment.
Prepaying the Mortgage Earlier
It may be a Christmas bonus, an inheritance or a tax refund, but all three can help you to pay down your mortgage more quickly with a lump sum payment. Mortgage loans are interest rate heavy for the first 5-7 years of the beginning of a mortgage. The extra payments you make after getting your mortgage loan, the less interest you’ll be paying. The interest you save by paying down early will give you further savings, which you can then save to pay down at the end of a term. The savings can be in the thousands of dollars, but you’ll also be achieving more equity in a house when you do this. Mortgage products often allow for as much as 20% to be paid down on a yearly basis.
Variable Rate Mortgages
People with variable rate mortgages, who have seen their rates go down, should continue making higher payments rather than using the lower payment rate. If you decide to do this then advise your lender of your intentions and ensure that there is no penalty for making the higher payments. Sometimes though, even with the penalty charge, it may be to your benefit to continue with the higher payments. The faster you pay down the principal the less interest you will be paying.
Payments That Have Been Rounded Up
It may seem like a small amount of money, but if your payment is $775.00 and you rounded up that payment to $800 every month, you would actually reduce your amortization from 35 to 32 years or from 25 to 23 years immediately. Not bad for less than $1 a day.
Mortgage Payment Increase When Paycheck Increases
When you get an increase in salary, try applying the increase to your monthly mortgage payment. Although it’s nice to have extra disposable income and spend it on some luxuries, consider the long term benefits you’ll get if you apply it to your mortgage. Consider the long term approach and be free of your mortgage faster. Continue to maintain your lifestyle and you’ll be mortgage free much earlier than others.
Mortgage Payment Frequency
Those who chose to opt-in to the bi-weekly mortgage payments, and not the semi-monthly ones, will realize a significant savings in the long term of their mortgage. It boils down to one extra monthly payment every year and that means less interest, and your mortgage will be paid off earlier than expected.