Being in business as long as we have, we have had the privilege of seeing many clients grow financially from the purchase of their home 20+ years ago to financial freedom and being mortgage free today. This one particular couple purchased their home and obtained a mortgage with us in 1998, 17 years ago. Originally, they had a 25 year amortization when they purchased. When it came time to re-finance 5 years later, their income had increased and they were able to afford some larger payments so we kept them moving forward with a 20 year amortization and put them in a little bit more of a flexible mortgage situation.
We sat down with them and laid out a plan to help them decrease their amortization significantly and pay off their mortgage as quickly as possible. Today, 17 years after the original purchase, they have been living mortgage FREE for the past 11 months, traveling the world and we want to show you how you can do the same! So how did this couple pay off their mortgage in 17 years? Here are a few tips to help you do the same:
Switch from Monthly to Accelerated Bi-Weekly Payments. There is a difference between regular bi-weekly payments and accelerated bi-weekly payments; the latter is the one that will shorten your amortization. Bi-Weekly payments are essentially taking the monthly payment and dividing that into 26 bi-weekly payments. So $1,000 monthly is $12,000 for the year, divided by 26 payments is a bi-weekly payment of $461.54. Acc-Bi-weekly, you are taking the monthly payment and splitting it in half, then making 26 of those payments. So $500 x 26 payments = $13,000. This is the equivalent of one extra month of payments each year. Over a 25 year amortization, that is 25 extra monthly payments, therefore taking 2 years off your amortization in total.
Take advantage of your pre-payment privileges. Most lenders allow pre-payment privileges whereby you are able to increase your monthly payment by a certain percentage or make a lump sum payment of a certain percentage, both going directly towards your principal balance. We will use 20% for this example. If your payment is $1,000, you are able to pay an extra $200 each month. This equates to about 1.5 extra payments per year (more as it is directly towards principal). Over the course of a 25 year amortization, if you do this every month that is $35,000 right to your principal. Again shaving about 3 years off your total mortgage life.
Re-Finance Strategically – If you are comfortable with a variable rate mortgage, this will allow you to break your mortgage and pay only a 3 months interest penalty (Which is usually much lower than Interest Rate Differential on a fixed rate mortgage), and you can ask your broker to keep an eye on rates to lock you in if need be. If your broker keeps an eye on the rates for you, there will be certain times where the rates may drop below what you are paying and the money you could save on interest may outweigh your penalty. Doing this could increase the amount of principal you are paying.
The 3 easy solutions above alone can shave 5-6 years off the life of your mortgage, there are also some other tips and tricks we can share if you’re interested. If you’re not sure what privileges or options you have available with your current mortgage or want to see if you can fast track your amortization, give us a call or email and we’ll go over it with you!
Have any other good ideas or something we may have missed that could help a fellow Home Owner? Please share in the comments or Tag us in a Facebook post!
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