You hear and perhaps read about this topic often enough. But, have you ever considered to explore practical options that can be implemented and really can work for you? Let’s explore.
Winning The Amortization Battle!
Yes, it is possible to cut down a 25 or 30-year amortization to about half with some strategies and techniques.
Remember, each month you shave off your amortization is hundreds of dollars, perhaps even thousands. Can you imagine the impact of shaving off months and years from your amortization? The presents an enormous opportunity and should be explored.
However, the majority of people just continue making their normal month payments and renew at expiry and keep things running on “auto-pilot”. They don’t plan to pay the mortgage off sooner, they only plan to make their monthly and hope they have some extra to pay down each year, which rarely ever happens.
Paying off your mortgage faster not only frees up cash flow, but also provides you a better quality of life and presents you with many opportunities to invest that you would otherwise not be able to entertain.
If you motivated to make some progress, here are some tips that may help.
Shorten the Amortization!
Time is money and with mortgages, there is no way around this. There are all kinds of methods being preached to pay your mortgage off faster, including bi-weekly payments, pre-paying your mortgage, etc.
Accelerated bi-weekly or accelerated weekly payments are an obvious to me. You will hardly feel this in your budget, especially if you are being paid in the same frequency. Huge savings, very little effort. BE CAREFUL. Many lenders offer both accelerated and non-accelerated payment frequencies. Non-accelerated with serve no purpose in accelerated debt reduction.
Bottom line is to save money on your mortgage you need to pay it off as quickly as you can. Just keep it simple. Even if it’s not paid off, while you are making attempts to paying off sooner, its saving you money. It’s an automatic.
For example, if your mortgage was originally $400,000 at 3% over a 30-year amortization, your monthly repayment would be $ 1,682.41. Over the 30 years, this equals an overall total repayment amount of $605,667.60.
However, if you changed the amortization to 15 years, your monthly repayment would be $ 2,758.75 per month. The reduces the total amount you will pay to $ 496,575 – this will save you a whopping $109,092.01!
Now keep in mind this is just an illustration, so you don’t need to go drastic, you can even go from 30 years down to 29 years and make an impact. On the other hand, the illustration uses a relatively low interest rate. The higher the rate, the more the savings.
Whenever possible, lower your amortization to an affordable amount, however minimal you think the impact will be. It works.
Set Your Payments At A Higher Rate, Especially If You Are On A Variable Rate Mortgage
Interest rates at record lows, so there should be room to budget your payments at a higher rate on an “as if” basis. This will get you months and years ahead of the game as far as paying your mortgage off sooner is concerned. Set your payments “as if” you have a higher rate of interest. Get the mortgage at the lowest rate you can and then set your payments at 1 percent (or whatever you can afford) above the repayment amount. If you are on a variable rate, this also provides you with a buffer so you will not feel it so much in your budget should rates increase.
Yes, paying off your mortgage is possible and very likely if you do things right. Make a plan of how much interest you would like to save and what date, year you would like to be mortgage free and set your accelerated payments and amortization period accordingly while allowing a buffer for rate increases. You will get there faster than you think.
VERICO The Financial Forum Ltd.
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